13:23 02 October 2014
The savings trend is swiftly changing. Lots of people prefer saving billions of cash in stocks and shares ISAs (Individual Savings Accounts) as opposed to saving in cash. This is because of the resilient performance of the equities market but also the lost confidence in savings due to poor interest rates. The recently enlarged New ISA tax-free allowance of £15,000 has inspired many to risk in stocks and share with hope of earning better returns. This has increased total investment in stocks and share ISAs to stand at £18.4 billion, a 12 % increase as at April 5, 2014 compared to the previous year. On the other hand, cash ISA saving has dropped by 10%, an equivalent of £1.2 million in the same period.
The following are the two major reasons you must consider investing in stock and shares ISAs:
Enhanced stock market confidence
It is simple to abandon your cash ISA and invest in stocks. Interestingly, savers of stocks in Britain’s biggest companies clinched about 65% return on their investment as revealed by the benchmark FTSE 100 index in the last five years. However, if you had invested in the top performing cash ISA, you could just end up with peanuts in your pocket of about 1.5% return in your pocket. This could put you in the worst kind of situation of 0.1 percent below the inflation rate that stood at 1.6 percent in the period.
Low interest rates associated with cash ISA
The rise in cash ISA rates usually happen at a snail’s pace and consequently putting you below the inflation rate over the decades. Alternatively, you can secure your money in a fixed rate saving bond, say Barclays with 2.02% yields for 2 years or Virgin Money with 2.8% yields for three years.
If you are ready to risk losing money in the short term so as to get potentially better results, the best option is to invest in long-term stock and earn over 65% returns on your investment.