Give your Isa a spring clean

22 March 2018
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Do you know how your Isa is invested? Have you even looked at it lately? I firmly believe that you should give it a review at least once a year and preferably every six months.

The end of the tax year and the beginning of the next on 5 and 6 April is a great reminder to give your Isa holdings a spring clean. You may have just invested your allowance for the 2017/18 tax year and you may be thinking about investing your new allowance.

If you’re holding a Cash Isa, then see if you can move to a better paying Cash Isa account – for details of the best rates see our guide. Or you could decide to move your cash holdings to higher-risk Isas such as the Innovative Finance Isa or the Stocks and Shares Isa.

There’s a long list of reasons to be cautious with your money in 2018: the unpredictability of President Trump, the situation in North Korea, Brexit worries, and now strained relations with Russia. But interest in stock market investing continues to grow as income-starved savers take on more risk in a bid to achieve better returns. Yes, Cash Isa rates have nudged up for the fi rst time in seven years, but they’re still averaging less than 1% for £20,000 in an instant access Cash Isa, according to financial information business Defaqto. Investing in the stock market is one of the few ways you can grow your money above inflation, which is at 2.7% at the time of writing.

In the supplement with this issue, we explain how to invest for income in the stock market using investment trusts. Plus, our First 50 Funds has plenty of income investment options for beginners. Go to Moneywise.co.uk/first-50-funds.

If you already hold a Stocks and Shares Isa, it’s time to monitor performance of the investments. Have some performed better than others? This could have skewed your portfolio and put it out of balance. You might need to sell some of the better performing holdings and buy some more of those that haven’t performed so well. This strategy may sound counterintuitive, but investments tend to go in cycles and come back into fashion again. If you hold a mixture of asset classes such as shares, bonds, property and gold, you will find that they perform well at different times of the market cycle.

Meanwhile, check that you’re not paying too much for your funds by holding the wrong version of the fund. Funds often come with different share classes, with different charges attached.

Old-style fund share classes have higher charges that incorporate an element for commission. These were widespread before a rule change in 2013.

Newer-style, cheaper ‘clean’ fund share classes were introduced when the regulator said consumers needed a clearer understanding of the charges applied to their investments. They are the same investments as the original share classes of the funds, but commissions for fi nancial advisers, fund supermarkets or brokers have been stripped out, leaving you with just the fund manager fee.

Meanwhile, some fund shops have negotiated special reduced fees on certain funds. These deals require their own share classes, sometimes called ‘super-clean’. Check if your investment platform offers clean or super-clean – you could be much better off over the long run.

Meanwhile, do Isas themselves need a bit of a spring clean? A group of MPs and savings experts has called on the government to scrap the current regime of multiple Isas in favour of an ‘Everything Isa’ instead.

In a new report, the Association of Accounting Technicians (AAT) highlights how much complexity has been created for what was originally meant to be a simple, tax-efficient savings vehicle.

Isas currently available are: the Cash Isa, Stocks and Shares Isa, Junior Isa, Help to Buy Isa, Innovative Finance Isa and Lifetime Isa. You can also inherit a spouse or civil partner’s Isa in the event of their death.

The report states: “There is now an Isa for every day of the week, offering unnecessary complexity, bureaucracy and confusion for consumers.”

We’d love to hear what you think? Do you find it confusing? Or are you happy with the Isa regime? Email editor@moneywise.co.uk

This is my last issue as editor of Moneywise as I move on to a new role with Moneywise’s parent company Interactive Investor. However, I will still be campaigning on financial education and striving to build a nation of better investors. Please keep in touch by following me on Twitter @MoiraONeill.