With interest rates slowly back on the rise, we round-up the best savings accounts and Isa accounts on offer in 2019.
Most investors are familiar with the idea that diversification can help reduce the risk attached to their portfolio and smooth total returns over the longer term. It’s a simple principle: not having all your eggs in one basket means the risks of out-and-out failure – though also the chance of stratospheric success – are diluted. Moreover, even if holdings in a portfolio all do equally well over time, it’s likely that their fortunes will ebb and flow, so you should get a smoother ride.
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The individual savings account turned 20 years old this year. First introduced in 1999 by the then chancellor Gordon Brown to replace the share-focused Pep (personal equity plan) and cash Tessa (tax-exempt special savings account), the Isa has proved an invaluable tax wrapper for UK investors and savers.
Women are still woefully under-represented among the ranks of stockmarket investors. That might be because they lack funds to invest, or confidence, or both. Either way, they are much less likely to invest than men are.
The latest Isa sales figures have confirmed the gender gap once again: in the 2016/17 tax year 17% of women invested through a stocks and shares Isa. That figure was up from 14% in the previous year (which is encouraging) but well below the 24% figure for men. The vast majority of women chose to keep their money in cash Isas.
Savings rates on easy access accounts have finally been creeping up, with the top rate now 1.5%. But often this rate is only available to new customers.
Banks and building societies used to pass rate rises on to all savers in variable rate accounts, but now most of them only offer a higher rate to new customers. Loyal savers continue to earn the lower rate, which in the worst cases can be as low as 0.25%.
When the then chancellor Gordon Brown introduced Individual Savings Accounts (Isas) as an enhanced, more generous version of tax-free Personal Equity Plans 20 years ago in 1999, his aim was a pretty simple one: he wanted to get ordinary people more engaged with their finances, and in particular promote the idea that stockmarket investment was the best way to build a more prosperous long-term future.
As sure as night follows day, in the weeks following the end of the tax year various financial firms focus their attention on highlighting the benefits of investing your Isa at the start of the new tax year.
Recent years have seen growing calls to simplify the Isa market. New research from Octopus Investments* shows why this idea merits serious consideration.
Despite the undeniable success of Isas over the past 20 years, there is strong evidence that people find the Isa market confusing. As a result, many are not using Isas to their full potential.
Cash is king this Isa season, with a record amount of money deposited into cash Isas in January, figures from the Bank of England show.
In contrast, sales of stocks and shares Isas have declined year-on-year. According to the Investment Association, in January investors withdrew £506 million from funds held in an Isa wrapper, whereas a year ago £275 million was invested.
Individual Savings Accounts (Isas) are a useful way to stash up to £20,000 each tax year in a wrapper the taxman can’t touch. They remain popular with savers, who poured a record £608 billion into adult Isas in 2017/18. But the focus is shifting. With interest rates on cash Isas pitifully low and the personal savings allowance exempting most people from paying tax on their savings, cash Isas’ popularity has waned, while inflows into stocks and shares Isas have hit new highs.