'˜Cash ISA's aren't what they used to be!'
On a recent visit to see retired couple Samuel and Margaret in Ballymena they presented ISA statements showing a total investment of Â£84,000, writes Mark Gordon, Welby Associates.
They had each been paying into cash ISA’s with their bank on an annual basis since 1999, when ISA’s were first introduced. At that time the average rate of interest was 5.17%. Similar rates continued yearly through the years until the significant downturn in the global economy in 2008. Since then banks and building societies more than halved interest rates to 2.2% (Nationwide Cash ISA) and below between 2009-2011.
Rates rose to an average of just 2.8% in 2012 but fell again the following year to an average of 1.75% for 2013. The downturn in these rates continued further in 2014 falling to an average of 1.48%. Unbelievably, they have fallen further to an all-time low of 0.9% in October this year.
When we all thought they couldn’t possibly get any lower the recent announcement that the bank of England were reducing their base rate to just 0.25% has seen building societies such as Nationwide reduce their cash ISA rate to just 0.75%.
Therefore in a very short period of time Samuel and Margaret went from receiving 5.17% on their investment to 0.75% , which, on an amount of £84,000, equates to a difference in growth of £3,712.80 per annum. Many other cash ISA’s are offering much lower rates than this.
With the current rate of inflation sitting at 1.4% (August RPI) Samuel and Margaret both realised that their money was actually depreciating in real terms. What many people don’t realise is that anyone can transfer money directly from a cash ISA to an investment ISA. These are becoming increasingly popular as investors are no longer prepared to accept the relatively poor returns being offered on their cash savings.
As this money was earmarked for their grandchildren in five to ten years time they were more than happy to invest into a medium to long term investment. This increased the potential for growth as the banks and building societies continue to slash rates on cash savings.
Samuel and Margaret now realise that their savings may be “put to much better use” as they have had this considerable amount of money with a below inflation rate of return.
It’s also important to find the right investment features for you; different methods of investing will suit different circumstances. Welby & Associates will be able to talk you through all your different saving options, and develop a savings plan that works for you, so you can start making your money work harder. Welby & Associates will provide you access to advice on safeguarding and investing your money for that important, specific goal – and insights to arrangements that could help you save money, by making your savings and investments tax-efficient in the process.