Posts Tagged ‘ISA season 2014’
The latest HMRC figures for the 2013/14 tax year show that although there were fewer subscriptions into ISAs overall compared with the previous tax year, numbers into Stocks & Shares ISAs have grown significantly. We take a closer look at the numbers as well as find out which investments have been the winners from this shift in ISA behaviour and what this could mean for the New ISA going forward.
Low savings rates set the scene
With the Bank of England base rate held for another month at 0.5%, whatever the speculation around future interest rate rises, the facts remain that this record low is now in its 66th consecutive month and the savings rates available from Cash ISAs are still at pitifully low levels.
Figures released at the end of August by the Bank of England showed the rates on Cash ISAs have fallen significantly since 2012 and the introduction of the Funding for Lending Scheme. In July 2012, Cash ISAs offering a bonus paid an average rate of 2.57%% whilst today they pay just 1.18% on average – less than half what they used to. For Cash ISAs not paying bonuses the rate has fallen from 1.41% to 0.86% over the same period, a fall of almost 40%.
Fixed rates failing to inspire
And it’s not only easy access accounts that are failing to inspire savers. Top one and two year fixed rate Cash ISAs are paying around 1.70% and 2.0% respectively whilst leading 3 year fixed rate deals top 2.50% and for a 5 year term you might get 2.80%. The good news is that with inflation currently running at 1.6%, all of these fixed rates are inflation beating, but the ISA figures show us that this is clearly not enough for savers and investors looking to the longer term.
ISA numbers down, Investment ISAs up
The end of financial year ISA statistics from HMRC show that overall subscription numbers into ISAs has fallen year on year. Between 6th April 2013 and 5th April 2014 there were a total of 13,473 ISA subscriptions, down from 14,606 made during the previous tax year. With such historically low savings rates it is hardly surprising that the number of ISAs is down with Cash ISAs historically being the more popular of the two ISA options.
However, although the number of ISAs has fallen, the above statistics show that savers are putting more money away than ever before. The average amount invested in a Cash ISA rose from £3,501 last year to £3,704 this year, and the amount saved into Stocks and Shares ISAs increased from £5,629 to £6,163 over the same period, the latest ISA subscriptions revealing more investors have been allocating towards stocks and shares than buying into cash.
Savers put record amount in stocks and shares ISAs
According to the latest figures from the Office of National Statistics, the total assets invested into Stocks and Shares ISAs were a record £18.4bn in the 2013-14 tax year with £38.8bn in Cash ISAs, a change in attitude from 2012-13 when £40.9bn was subscribed into cash ISAs and £16.5bn was held in Stocks and Shares ISAs. This equates to an 11.5% increase on the investment side versus a 5.4% increase for Cash ISAs, over double the increase.
The environment of low cash ISA rates failing to meet the needs of many ISA subscribers has boosted stocks and shares ISAs to a record year of investment and the increase in average subscriptions to record levels shows not only the importance that UK savers and investors put on tax-free ISAs, but also that they are increasingly realising that this valuable tax break can be better used.
New ISA changes mean the trend is likely to continue
Since 1st July 2014, the key changes to ISAs are as follows:
- All existing ISAs become New ISAs
- New ISA allowance of £15,000
- Allocate up to the full allowance in either cash or stocks & shares (investments), or a mixture of both
- Freedom to transfer from cash to stocks & shares and vice versa (Stocks & Shares ISA to Cash ISA previously not permitted)
The continued poor savings rates and improved confidence in the markets, combined with the higher ISA allowance and greater transfer flexibility suggest that this trend will continue throughout the current tax year and beyond.
Confirmation that savers are looking to investments
Indeed, those who have half an eye on a potential interest rate rise may not want to lock into a fixed rate ISA in the short-term and what these latest figures confirm is that more savers are looking towards investments. As many banks cut their rates to deter attracting new savers and slash rates for existing customers coming to the end of their initial deal, it is the shorter term rates that are proving most uncompetitive as the prevailing market brings with it an ISA dilemma for many savers – either lose money in real terms from a savings account, or take on more risk.
This difficult question of taking on more risk to try and combat the effects of inflation and realise competitive returns over and above inflation is one which more and more savers are facing. Obviously putting your capital at risk is something which you should consider very carefully indeed, particularly if you are considering this for the first time with some of your Cash ISA savings or new ISA money.
Our Top 5 most popular plans for ISA investors
Here at Fair Investment Company we have also seen a rise in the number of investment plans being used by ISA savers and investors on the back of a very busy summer. With this in mind, here is our Top 5 investment plan selections based on our most popular plans with both existing and new investors:
- 5.40% fixed income, monthly payments with capital at risk based on the performance of the FTSE 100 Index – Investec Enhanced Income Plan » This is our most popular income investment and the best selling investment for those using the full £15,000 New ISA allowance
- 7.20% fixed income, monthly payments with capital at risk based on the performance of five FTSE 100 shares – Meteor FTSE 5 Monthly Income Plan » This is our second most popular income investment.
- Potential yield up to 9% each year with quarterly payments, capital at risk based on the performance of four FTSE 100 shares – Focus FTSE 4 Quarterly Income Plan » This is one of our most popular investment plans overall.
- Potential 10.25% annual growth (not compounded) and early maturity from year 2 onwards, capital is at risk based on the performance of the FTSE 100 Index – Investec Enhanced Kick Out Plan » This is best selling growth investment plan and the most popular investment for ISA transfers.
- Potential 7.50% annual growth (not compounded) even if the FTSE falls up to 10%, capital at risk based on the performance of the FTSE 100 Index – Investec Defensive Kick Out Plan » The third entrant from Investec offers a defensive element and is one of our most popular investment plans overall.
Don’t miss out
Recent research suggests that more than one in every four adults in the UK (26%*) is paying too much tax on their savings and investments. With as many as 12.5 million adults failing to make use of a tax-efficient ISA with their hard earned money, they could be losing out by paying tax unnecessarily. Putting money in an ISA is one of the simplest things to do to protect your money from the taxman and with the new ISA rules resulting in an increased allowance and increased flexibility, making sure you don’t miss out should be a top priority.
Click here for more information about the Investec Enhanced Income Plan »
Click here for more information about the Meteor FTSE 5 Monthly Income Plan »
Click here for more information about the Focus FTSE 4 Quarterly Income Plan »
Click here for more information about the Investec Enhanced Kick Out Plan »
Click here for more information about the Investec Defensive Kick Out Plan »
* NFU Mutual, June 2014.
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. Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future.
These are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment due to the performance of the FTSE 100 Index or shares listed within the Index. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. As share prices can move by a wide margin, plans based on the performance of shares represent higher risk investments than plans based on the FTSE 100 Index as a whole. The past performance of the FTSE 100 Index or shares listed within the Index is not a guide to their future performance.
Although the increases to the ISA allowance are to be received with open arms, there is no getting away from the fact that ISA savers continue to be hammered by low interest rates. At one of the more busy times of the ISA calendar, savers have been dealt a further blow by additional rate cuts, resulting in those who are most organised being hit the hardest. We take a look at recent developments and what the ISA market has to offer, as well as review some of the options being considered in light of the changes announced in the Budget.
Economic latest – interest rates held, inflation down
The Bank of England’s Monetary Policy Committee voted unanimously again this month to keep the Bank’s base rate on hold at 0.5%, which means it has now been at this record low for 62 consecutive months, continuing well into its sixth year.
Better news for savers was that inflation fell to 1.6%, its lowest level since October 2009 and well under the Bank’s 2% target. Inflation has now almost halved from a peak of 2.9% last June.
Another blow to savers as savings rates are cut
However, these two elements of our economy alone do not tell the whole story. The interaction between interest rates, inflation and savings rates is an important one since looking at one without giving consideration to the impact of the other two can be both misleading and costly. Although the reduction to the headline rate of inflation is at first sight great news, this does not necessarily mean savers will automatically benefit.
Much has happened recently in the world of investment funds with some major changes taking effect from 6th April in terms of how investors access funds and how they are charged. With this in mind, we thought you might like a reminder of why many investors have already chosen the Fair Investment Fund Supermarket.
Here’s our Top 10 reasons why…
1. Extensive fund choice and our Select Range
Choose from over 2,100 investment funds from over 95 fund management groups including income funds, low cost trackers and managed funds.
2. Select Range of funds
Our Select Range has been created to help you choose by combining value for money with analysis carried out by leading independent research company Morningstar OBSR.
3. Huge savings on initial charges and free switching
Most of the funds available are offered at 0% initial charge saving you up to 5.5% when you invest, equivalent to £653 on a £11,880 ISA. We also offer low and transparent annual charging and no additional charges for switching.
With less than a week to go until the deadline for using your 2013/14 Investment ISA allowance (£11,520), this is your last opportunity to protect your returns from the taxman. If you are yet to make use of this valuable tax break, we let you know where investors are putting their money by bringing you our Top 5 most popular Investment ISA plans.
Conditional capital protection
These plans offer some protection of capital against a falling market since they all include conditional capital protection. This means that your initial capital is returned at the end of the investment term, as long as the FTSE has not fallen below a specific level (e.g. 3,900 points) or a percentage, normally 50% of its value at the start of the investment.
Your capital will be at risk if the Index does fall below the defined level, in which case your initial capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
Top of the list is the Enhanced Income Plan from Investec which pays a fixed income of 6% per year (paid as 0.5% each month) regardless of what happens to the FTSE. Capital is at risk if the FTSE falls by more than 50%.
Click here for more information »
Investec also offer our most popular growth plan with their Enhanced Kick Out offering the potential to mature early and return 9.5% for each year the plan has been in place (not compounded). The plan has a maximum term of six years but will mature early if the FTSE at the end of each year is higher than its value at the start of the plan, from the end of year one onwards. Capital is at risk if the FTSE falls by more than 50%.
Click here for more information »
Time is running out to meet the 5th April end of tax year deadline and so this is your last opportunity to protect your 2013/14 Cash ISA allowance (£5,760) from the taxman. To help you know where our customers are putting their money, we feature our Top 5 most popular Cash ISA plans.
All of the deposit plans below are fully capital protected and eligible for FSCS protection up to the normal deposit limits.
1. The potential for 4.85% annual income
The Target Income Deposit Plan from Investec offers 4.85% each year provided the value of the FTSE 100 Index at the end of each year is higher than 90% of its value at the start of the plan (subject to averaging). If the Index finishes below 90%, no income will be paid although should it meet the required level on any future anniversary, any missed payments will be added back.
Click here for more information »
If the FTSE 100 Index finishes higher than its value at the start of the plan, even if this by just one point, the 5 Year Deposit Plus Plan from Investec will pay a 30% fixed return. If the FTSE has risen by more than 30% then you will receive this higher amount, with no upper limit (subject to averaging).
Click here for more information »
With probably the most talked about Budget for many years and finally one that has gone the way of savers, we give you a 60 second guide to the changes around ISAs and what this will mean for both cash savers and investors.
New tax year, new limits
From 6th April 2014, the annual ISA investment limit for 2014/15 will initially rise by £360 to £11,880 (of which up to £5,940 may be in cash). The limit for the Junior ISA (JISA), which is beginning to attract more investors, will simultaneously rise to £3,840.
More radical reform
From 1st July 2014, more radical changes will occur:
- All existing ISAs will become new ISAs (NISAs), removing the distinction between Cash and Stocks & Shares ISAs
- The maximum you can save into a NISA will rise to £15,000 for the 2014/15 tax year, a further increase of £3,120
- The rule which prevents more than 50% of the total limit being placed in a Cash ISA will be scrapped and so the entire £15,000 NISA contribution limit can go into cash deposits.
- The ban on transfers from Stocks & Shares ISAs to Cash ISAs will be removed, thereby introducing full two-way transferability between deposits and investments and vice versa.
- Investment options will be widened to include, for example, peer-to-peer lending.
- The JISA limit will rise to £4,000 and this will also apply to Child Trust Funds (CTFs). The date from when CTFs can be transferred into JISAs was not brought forward and remains, provisionally, April 2015.
With the 5th April end of tax year deadline close at hand, we bring you our selection of income and growth investment plans to help you decide how to best make use of this valuable tax break.
These plans offer you a defined return for a defined level of risk, which means that you know the exact terms of the plan prior to investing and therefore exactly what needs to happen in order to provide you with the stated income or growth return.
Conditional capital protection
Unlike investment funds – where all of your capital moves in line with daily fluctuations in the market – these plans contain what is known as conditional capital protection. This means that you will receive a return of your capital at the end of the plan term unless the underlying investment, normally the FTSE 100 Index or a number of FTSE 100 shares, has fallen by more than 50% or finishes below a level specified at the outset, e.g. 3,900 points, in which case your capital would be at risk.
The Enhanced Income Plan from Investec was our most popular income investment in 2013 and continues to be a best seller. The main appeal of the plan is that it offers a fixed income which is paid to you each month, regardless of the performance of the FTSE 100 Index. The annual income is currently 6% (paid as 0.5% each month) which is high when compared to typical yields currently being paid by equity income funds. There are also no additional annual management charges so you know exactly how much you will receive, when and for how long. Capital is at risk if the FTSE drops by more than 50% during the plan and fails to recover by the end of the term, in which case your initial capital will be reduced by 1% for each 1% fall, so you could some or all of your initial investment.
Fair Investment view: “6% tax free income (if held in an ISA) is the equivalent of 7.5% taxable income for a basic rate tax payer and 10% for a higher rate tax payer. This high level of fixed income and the monthly payment frequency are popular features and with ongoing uncertainty around future interest rates and dividend yields, this plan could offer a competitive balance of risk versus reward that could be considered by both savers and investors”
Click here for more information »
With such a vast range of options available for both Cash ISAs and Investment ISAs, it can be easy to lose track and with 5th April 2014 deadline fast approaching, we thought you might like some help. By answering the questions below we’ll help you keep on track and make sure you maximise the opportunities available with this valuable tax benefit.
Have I maximised my ISA allowance?
The Cash ISA allowance is £5,760 for the current tax year rising to £5,940 for the next tax year (2014/15) which starts on 6th April 2014. The Investment ISA allowance is £11,520 for the current tax year rising to £11,880 for the 20142/15 tax year.
Remember, even if you put the maximum into a Cash ISA, you are still able to invest up to £5,760 this tax year £5,940 in the next tax year into an Investment ISA. This is in addition to any existing ISAs you decide to transfer.
Has my partner maximised their ISA allowance?
Always remember that the ISA allowance is not just an annual allowance but is also per individual. This means that a couple maximising their Investment ISA allowance for both this current tax year as well as the next, have the opportunity to make new investments of up to £46,800 in total. To help you, many investment plans and Cash ISA alternatives are offering the option to take advantage of both years’ ISA allowances at the same time.
With time running out to meet the 5th April end of tax year deadline, we bring you our selection of the best Cash ISAs available.
Our ISA season instant access selection is from Scottish Widows Bank, which is offering 1.00% AER on their E-Cash ISA. You do not have to be an existing customer to obtain this rate nor open any other type of account as a condition. You can make unlimited withdrawals – without notice or loss of interest – and the account accepts Cash ISA transfers. The minimum to open the account is reasonably low at £1,000 and there is choice of biannual or annual interest.
In the shorter term you can get 1.60% with the 1 Year Fixed Rate Bond from Aldermore or 1.80% AER for a 2 Year Fixed Rate Bond, again from Aldermore. Both accounts have a minimum of £1,000, accept transfers in from existing Cash ISAs and can be managed online, by phone or by post.
With the approach of the end of the tax year, banks and building societies traditionally launch new accounts to attract savers but there has been a noticeable lack of new accounts this year. This has particularly effected the fixed rate market resulting in there being very little on offer in the way of longer term fixed rate Cash ISAs.
Concerned about interest rates and inflation?
Many of those considering traditional savings plans are likely to be considering instant access or a one or two year fixed rate bond, especially considering the lack of competitive longer term deals. However, although the above rates are competitive, remember that with inflation running at 1.9%, even though you do not pay any tax on your interest they are still falling short. If inflation should move up from its current levels during your fixed rate period, the impact will be even greater.
When unveiling its quarterly inflation report last month (Feb 2014) the Bank of England stated that interest rates will remain at their record low ‘for some time to come’ with the base rate potentially rising to 2% by 2017. The Bank added that interest rates will probably never reach pre-recession levels of around 5% even after the economy fully recovers, commenting that the ‘new normal’ was likely to be 2% to 3%. Since there is also no guarantee that any rate increase will be passed on to the savings rates on offer, perhaps you should indeed be concerned about the rate you are receiving and the impact inflation could have on your savings.