The savings industry has been noisily cranking up for one of the biggest days in this year’s calendar, 1 July.
That’s when the super-sized ‘New’ ISA, or Nisa, is launched, allowing you to save up to £15,000 a year tax-free.
Banks and building societies are particularly excited, because now you can save your full allowance in cash. Previously, only half your smaller £11,880 allowance could go into cash.
So the amount you can stow away in tax-free savings has been almost tripled, from £5,940.
Banks are understandably keen to get their hands on this money. Or so you would think, judging by all the fuss.
Nisa Or Nastier?
There is another reason Nisas are said to be good news for savers.
Under the old rules, you could shift existing ISA money from cash into stocks and shares, but you couldn’t move it the other way.
This made some people reluctant to put too much into stocks and shares, because they couldn’t return to the security of cash if they wanted to do so later.
Now they can do what they like.
How Low Can You Go?
There has been an awful lot of noise about Nisas. When Chancellor George Osborne announced the expanded allowance in March, it was part of his much-heralded “Budget for savers”.
Bank marketing departments have gone into overdrive, to grab a share of the new wall of money supposedly heading for cash ISA from next week.
Unfortunately, they haven’t been so enthusiastic about offering decent savings rates.
Anybody who expected providers to compete for customers with a string of new deals has seen their hopes dashed.
Halifax and Santander have actually withdrawn their ‘best buy’ deals, and replaced them with something worse.
Once again, banks have hit a new low.
A Lot Of Fuss About Nothing
Right now, the average variable rate cash ISA pays a measly 1.21%, according to Moneyfacts.co.uk. Astonishingly, rates have actually fallen since Osborne’s announcement in March.
The average one-year fixed rate ISA pays 1.48%, also down since the Budget.
So much fuss, so much noise… for next to nothing.
Cash Isn’t King
Cash underperformance isn’t a recent phenomenon. If a saver had invested £15,000 into the average UK savings account 10 years ago, their money would be worth just £16,583, fund manager Fidelity calculates.
That’s just £1,583 more.
If they had invested £15,000 into the FTSE All Share instead, they would have £35,219.
That’s a profit of £20,219.
So are you still thinking of putting £15,000 in cash?
A Million Reasons To Avoid Cash
In the short term, stock markets can be volatile. So you have to allow for that.
But in the longer run, they can make you rich. Cash won’t.
Fidelity calculates that if you invest your full Nisa allowance each year, and see 5% annual growth rate, you would become a millionaire within 25 years.
With luck and careful stock picking, your money will grow faster than 5% a year.
And you really should do better than 1.21%.
