Our Top 3 income selections
Our selection of income investments is based on the main features investors are looking for when it comes to finding the best income opportunities available…
5.64% fixed income, monthly payments – the Enhanced Income Plan from Investec was our most popular income plan during 2013 and continues to be a best seller with both savers and investors.
7.62% fixed income, monthly payments – paying 7.62% fixed regardless of the performance of the stock marekt, the FTSE 5 Monthly Income Plan from Meteor is the latest income plan to be added with Morgan Stanley acting as the counterparty.This investment is already proving popular with our existing customers and experienced investors.
Up to 9% income, quarterly payments – the FTSE 4 Quarterly Income Plan from Focus (Credit Suisse counterparty) offers 9% income provided the value of four FTSE 100 shares are at or above 60% of their value at the start of the investment.
All of the plans featured accept new ISA investments, ISA transfers and non-ISA investments. Remember, Cash ISAs can now be transferred to Stocks & Shares ISAs which opens up another option for savers who are having to face the impact of record low savings rates. Please note that Stocks & Shareas ISAs usually put your capital at risk and if you transfer a Cash ISA to a Stocks & Shares ISA you cannot then move it back into a Cash ISA at a later date.
ISA season is an important time of year as we start to consider all of the options available in order to make the best use of this valuable tax break. Although traditionally this is the time when savings rates start to pick up, competition among banks to offer competitive fixed rates remains at an all time low so it is more important than ever to think carefully before taking action. We therefore bring you our selections of the best Cash ISAs the market currently has to offer. For those prepared to put their capital at risk in the hunt for higher returns, we have also put together our Investment ISA season selections.
Below we have listed some of our most popular Cash ISA plans currently available. To help you further, we have split these into user friendly categories and where appropriate, divided them into term since the combination of the return available and the length of time your money is tied up are often the most important factors when deciding which option to take.
Remember, Cash ISAs can now be transferred to Stocks & Shares ISAs which opens up another option for savers who are having to face the impact of record low savings rates. Please note though that once you transfer a Cash ISA to a Stocks & Shares ISA you cannot then move it back into a Cash ISA in the future. Click here to review our Investment ISA season selections >>
With ISA season well and truly under way, this is an important time to consider how best to make use of this valuable tax break and remember, if you do not use your ISA allowance it is lost forever. With the need to review existing ISAs as well as making sure new investments bring with them the opportunity for high returns, we bring you our selection of the best income and growth Investment ISAs the market currently has to offer. For those looking for savings plans or who have capital protection as a top priority, see our Cash ISA season selections.
Below we have listed some of our most popular Investment ISA plans currently available, split between income and growth opportunities. With income needs continuing to play a critical role for many investors, the attraction of having tax free income, especially when this income would normally be subject to your highest marginal tax rate, is too good to miss. Whilst for investors looking for growth, we have a number of plans including those which take a defensive view on the stock market as well as investments with the opportunity to mature early or ‘kick out’ as early as year one. With the potential for headline returns of up to 9% income and 12.5% growth, there is a wide range of attractive opportunities.
Remember, Cash ISAs can now be transferred to Stocks & Shares ISAs which opens up another option for many savers who are having to face the impact of record low savings rates. Please note though that once if you transfer a Cash ISA to a Stocks & Shares ISA you cannot then move it back into a Cash ISA in the future.
With ISA season well under way and the end of the tax year in sight, it’s time to make good use of your ISA allowance if you haven’t done so already. You’ve only got until midnight on 5th April 2014 to squirrel away up to £11,520 of your hard-earned cash and protect it from the tax man, so there is no time to waste. The period between now and the end of the current tax year is an important time for both savers and investors so to help you make the most of your ISA allowance, we’ve put together our Top 10 tips for the 2014 ISA season.
Tip 1 – Don’t miss deadlines
Before you do anything else ISA-related, make sure you know all the relevant deadlines. The main deadline to remember is 5th April since this marks the end of the tax year and is the latest date for using your ISA allowance within the current tax year (2013/14). Remember that you cannot backdate your 2013/14 ISA allowance once this deadline has passed – if you don’t use it, you lose it.
Also look out for other deadlines which may apply. Many ISA providers will need your application – and possibly your cleared funds – before this date. Additionally, some ISA plans have an earlier deadline for ISA transfers whilst some offer limited funding and may close early if they become oversubscribed.
Tip 2 – Maximise your ISA allowance
Your total ISA allowance for 2013/14 is £11,520. You can put the entire allowance into an Investment ISA (stocks and shares ISA), or you can put up to £5,760 in a Cash ISA. If you decide to use some or all of this Cash ISA allowance, you can also put any remaining balance into an Investment ISA.
Also remember that these allowances are per person, so a couple can invest up to £23,040 in total this tax year and when the ISA allowance changes to £11,880 from 6th April 2014 (the 2014/15 tax year ISA allowance), this increases to £23,760.
Tip 3 – Understand what using your ISA can achieve
In the current financial climate ever penny counts – so why pay tax on money that you can protect from the tax man? If you had invested the maximum into a Cash ISA since the turn of the millennium and it had grown at 5% per year, you would have a pot approaching £80,000 whilst putting the maximum into an Investment ISA that had grown at 7% each year would see a lump sum of over £195,000. These are sizeable amounts, none of which would be subject to income tax or capital gains tax. Please note that the tax efficiency of ISAs is based on current tax law which is subject to change in the future.
The pressure on savers to maximise the returns from their capital is arguably greater than ever before, but despite inflation coming down the current market for instant access and fixed rate bonds is providing less and less to shout about. We therefore take a look at a selection of opportunities that are being considered by savers looking for the potential to enhance their returns and with ISA season now upon us, this is a timely opportunity to consider our options carefully.
The new year has unfortunately seen a continuation of the all too familiar backdrop of economic challenges. The Bank of England base rate remains at 0.5% as it approaches its fifth year at this record low and although the headline rate of inflation has fallen to the Bank’s target rate of 2%, nobody is celebrating as we continue to face the difficulties in keeping our earnings or retirement income in line with the day to day cost of living.
All household incomes are under pressure and with a genuine fear and uncertainty around what could happen to inflation if one dares to look beyond this year, we should all be vigilant and wary of what lies around the corner, especially when considering what to do with our savings.
Savings rates, dire straits
The mainstay of many a saver’s portfolio has historically been the fixed rate bond. However, rates here have been under continued pressure as banks have been able to secure cheap funding by alternative means. This has resulted in a sustained fall in interest rates available and so long gone are the days where committing your money for longer was all you needed to secure a higher rate that also had the potential to outstrip inflation.
This has also resulted in a worrying trend of many savers shoring up reserves in instant access accounts. With leading deals only offering around 1.50% AER, the only guarantee here is that even with inflation at its 2% target you will lose money in real terms, and that’s before the impact of tax is taken into account.
With returns on longer term fixed rates failing to hit the mark, there are signs of a worrying trend of savers using instant access accounts for money which would normally have been tied up within a fixed rate bond. Although this is perhaps understandable in the current market, there is also little optimism among savers that rates will pick up any time soon and inflation is only adding to the problem. We take a closer look at what is happening in order to understand the impact this may have and why considering all of the options available is more important than ever before.
Economic snap shot
The news that inflation fell to the Bank of England’s target of 2% for the first time since 2009 has had little impact on the savings market as the economic reality of day to day living continues to be a test for all concerned. Real wages also continue to fall as the increase in earnings falls far short of the rise in the cost of living, thereby reducing the spending power of take home pay for those at work.
For those who are retired, even those fortunate enough to have a pension that increases in line with inflation, they will still be feeling the pinch from their savings as they continue to experience the low levels of interest rates on offer. For the millions who elected to take out a level pension at retirement they are suffering on both counts.
Meanwhile, the base rate has been kept on hold at 0.5% which brings with it the realistic prospect in March that savers will have suffered five years of this record low, during which time they have had to endure a number of policies designed to get the economy back on track but which have the unfortunate side effect of pushing interest rates even lower.
Banks offering no favours
The Funding for Lending scheme in particular, which gave banks a cheap source of cash to lend as mortgages, meant they no longer needed to fund these deals from savers – as a result, interest was cut on many deals. This has also meant banks have been systematically shoring up the amount of saver’s cash on which they pay no interest. According to the Bank of England, the amount held in these accounts has increased by a fifth in the past year as banks have become awash with cash so that they do not need to pay struggling savers extra interest.
The result is that not only do they not want or need to attract new money, but since the start of the year there has also been an increasing trend of banks reducing the best-paying deals. Halifax, HSBC, Santander and Lloyds have all cut their savings rates with National Savings & Investment and NatWest to follow suit shortly. So if you are expecting savings rates to go up any time soon, you are almost certainly in the minority.
The fixed rate bond
This has created the unusual scenario of banks not wanting to find themselves at the top of the best buy tables and so when one name cuts its rates, another will follow suit as they simply do not want to attract your money. This has resulted in decent fixed rate deals in particular disappearing at an increasing rate.
Historically the traditional mainstay for every saver, when your fixed rate product matured it was simply a question of feeling comfortable with the prevailing rate being offered and deciding how long to tie up your money for. When rates in excess of 5% were freely available, the need to think about whether this was the right product was rarely challenged. How times have changed…
A losing battle
If we look at the current crop of fixed rate bonds available, the leading rates on offer range between 1.9% and 3.25% depending on whether you want to tie your money up between 1 and 5 years respectively. The rates are lower if you want to secure a fixed rate within a Cash ISA.
Therefore, although you continue to be rewarded with higher interest rates for tying up your money for longer, the upside of knowing exactly what rate you will get, when you will receive it and for how long must now be balanced against the wider economic challenges we face.
One of the most important considerations before making any decision is to understand the potential impact of inflation. In combination with our own tax treatment and the effect of any charges on our returns, this can have a significant effect on the most important reason for parting with our hard earned cash – the return we get in our pocket or the ‘net return’.
3.25% fixed per annum may look like a competitive rate in the current climate, but if inflation is running at 2% and you are a basic rate tax payer, your net return is only 0.6% each year whilst higher rate tax payers are losing money in real terms. It only takes a nudge up in inflation and the situation becomes even worse and more pronounced, especially over time.
Instant access to the rescue?
On the basis that banks and building societies hold £1.1trillion of our savings, it is even more worrying that there are also signs that savers are giving up chasing better rates of interest because the difference between the best and worst is so small. Bank of England figures from January reveal that the amount in ‘non-interest bearing accounts’, which includes current accounts, jumped by £21 billion in the past 12 months to more than £130 billion whilst the amount in instant access accounts also rose by £54.7billion. Savings in fixed rate bonds and notice accounts, which traditionally pay higher rates, fell by £38 billion.
The returns on many fixed rate bonds are so dire that savers can often do better in a standard instant access account. For example, Halifax pays just 1.4% to savers willing to tie up their money for a year whilst higher returns, albeit not fixed, can be achieved elsewhere on an instant access basis. So the trend is for savers to move their money into instant access but in the hope of what? Inevitably this will be in the hope of fixed rates increasing but the consensus view is that this is not likely any time soon. All the while, the risk being taken is that this money is not even keeping up with inflation so for how long do you let this continue?
The risk of doing nothing
The main risk of doing nothing is the impact inflation will have over time. With instant access losing you money in real terms and fixed rate bonds not offering much of a premium for tying up your money, even if you think that inflation could average at the Bank’s 2% target for the rest of this year, it only takes a small increase and suddenly you could be losing significant amounts in real terms.
Failing to understand the real impact inflation can have on your capital can produce painful results, especially over time. Based on the current economic outlook, arguably there has never been a more important time to make sure your capital is working as hard as it can. Not only must we ask ourselves what we are buying when committing to fixed rate bond, we should also be considering what alternatives are available since unfortunately the current market for savers leads us to a tough decision – either lose money in real terms from a savings account, or take on more risk.
ISA season upon us
With ISA season upon us this is also a timely opportunity to make the most of this valuable tax break which for basic rate tax payers increases any interest paid by 25% and for higher rate payers by 66% so is certainly not to be ignored.
Those looking for transfer options for their existing ISAs or to make sure they use their Cash ISA allowance of £5,760 or their Stocks & Shares ISA allowance of up to £11,520 must do so by the 5th April. Please note that the tax treatment of ISAs depends on your individual circumstances and may be subject to change in the future.
Consider your options carefully
With interest rates looking likely to remain low for quite some time the pressure is firmly on savers to consider the impact of record low savings rates, inflation and tax on the net returns we receive from our capital. Settling for the paltry returns on offer from banks or simply failing to take any action at all could prove extremely costly at a time when the need for income and growth from our savings is so high.
Recent trends are seeing savers looking to take on more risk with some of their capital in the hunt for potentially higher returns in an attempt to offset falling fixed rate bond yields. But whichever route you decide to take, with such a wide range of options available it is wise to consider all of your options very carefully indeed.
Compare alternatives to fixed rate bonds »
Compare alternatives for Cash ISA transfers »
Compare Investment ISA transfer options »
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.