Get on the Nicer Isa gravy train
Forget about World Cup fever, this summer is all about Isa excitement as the country’s savers benefit from the introduction of new Isa rules that will boost their savings. If you haven’t considered saving before, now is the time to take advantage of the new and improved ‘Nicer Isa’, aka the New Isa, which is being introduced on 1 July.
But while football fans are 100% committed to the support of their team (even if England fans have once again endured their team underperforming at major tournaments), savers are far more fickle. A recent survey conducted by Standard Life found that almost half (47%) of Britain’s savers ‘yo-yo’ between saving and overspending. This kind of person shops in Waitrose one day, then goes looking for bargains in Lidl or Aldi the next. They make lump sum savings, only to raid them a month later. If they use a discount voucher, they’ll blow the saving they made on something else.
If you want to be truly wise with your money and ensure a brighter financial future for you and your family, you’ll have to stop this kind of behaviour. Every time you make a saving, it should be going to pay off any expensive debt and, once that’s done, be placed straight into savings or investments, which would ideally be sheltered in a tax-free individual savings account.
From 1 July, the limit on how much you can invest in an Isa, tax-free, rises to £15,000. This is a huge amount. When personal equity plans (Peps) were first introduced in January 1987, the most you could invest in one year was £2,400, and that had to be invested in a collective investment scheme. After the introduction of Isas in April 1999, the annual limit of £7,000 for stocks and shares (£3,000 for cash) wasn’t changed until 2007-08, and only then in line with inflation, bar the odd year.
I met someone at an event recently and they confessed they had never started an Isa because they were unsure whether to go for the stocks and shares version or a cash Isa, and they didn’t want to start investing in one type and later feel as though they had made a mistake and were trapped. From 1 July, this excuse will no longer wash, as consumers will be able to invest their whole allowance in stocks and shares or cash – or any mixture of the two. Moreover, they will have the freedom to transfer existing Isas from stocks and shares into cash, or the other way around.
If that hasn’t whetted your appetite, let’s look at the statistics. Fidelity Personal Investing reckons you can become an Isa millionaire in just 25 years if you invest the maximum each year (although this takes into account annual growth of 5% and inflation-linked rises in the Isa allowance of 2.5% a year).
Fidelity also says that if a saver had invested £15,000 into the FTSE All Share index over a 10-year period they would have generated a handsome pot of £35,218.50, compared to just £16,582.65 from the average UK savings account.
But that shouldn’t put off anyone wishing to start small. If you start saving £50 a month in the average stocks and shares Isa fund, you would generate £7,274 after 10 years, rising to £12,204 after 15 years, £18,134 after 20 years and a whopping £34,091 after 30 years. Add £25 a month to that and the figures are even more startling: £10,911 after 15 years, rising to £51,136 after 30 years.
With the new Isa rules coming into play, challenger banks such as Tesco looking to shake up the Big Four banks’ stranglehold on British consumers and the new rules on switching, this is a great time to be a consumer – but you must take charge of your finances to benefit. In your enthusiasm to get on the saving or investing train, you mustn’t forget to check which accounts offer the best value, or research which Isa fund is best for you.
Don’t look back in 10 or 20 years and curse the fact that you didn’t start saving when you had the chance. Will you really miss £20, £50 or £100 a month? To quote Del Boy from Only Fools and Horses – one of TV’s great entrepreneurs – you know it makes sense.