I have £2000 procrastinating in a cash ISA. What should I do with it?(14 Posts)
Interest rates are pitiful at the moment - not much more than 3% available, and that means locking into a fixed rate for several years.
Obviously I don't want to lose the money, but I'm prepared to take a bit of a risk with it in order to potentially get bigger returns. I'm not planning on needing it in the near future, and have other money I could use in an emergency. However I have very little knowledge about stocks and shares, so would prefer the convenience of some sort of investment plan or trust.
My son has a Childrens Investment plan with Foreign and Colonial, which is the sort of thing I am thinking of (the adult equivalent obv), where he has a smaller amount of money in multiple trusts, some risky and some safer, which are all under the umbrella of the investment plan.
I'm self employed and only working part time at the moment, so earning less than the tax threshold, and this is likely to be the case for the next few years. Is there any advantage to me choosing an investment that has the 'ISA' wrapper? The Foreign and Colonial Investment Trust ISA has an annual fee of £60 + vat, which will eat up a lot of the potential gains on such a small investment. I haven't looked at products from other companies yet as I'm a bit confused by the whole matter! Would I be better with a Private Investor type plan that isn't tax free but has no annual fee? Or a pension savings plan - would that be too restrictive and require the money to be locked away for decades?
Does anybody have any advice or recommendations? I'm very !!
Shall I just stuff it under the mattress?
nah, I'll 'av it LOL
Have you thought about a self-select stocks\shares ISA? Do you dabble in stocks n shares? I bought a junior oil & exploration company recently and put it in a SS ISA. doing well so far. better than high st. rates or bond rates etc.
Don't you have to do a lot of research about what to buy, and then keep an eye on them to see if they are going up or down? And I wouldn't have a clue how to sell them! Are there any fees? Which company is your ISA with?
I only have Santander shares, which I got when a building society was taken over when I was about 10. I bought some shares in a company I worked for, which went bust!! So not sure I'd be that good at choosing good investments!
I posted a version of this in another section but it might help you out.
Basically it always makes sense to put your money in an ISA wrapper - you either use your annual allowance (£10,680 this year) or you lose it so use as much as possible. Henceforth any income or gains are tax sheltered.
Most shares ISA providers charge and annual fee if you have under about £5000 or £6000 or so but after that there is generally no fee if you choose the right provider. I use TD Waterhouse as they don't charge me a fee (I have more than £6000 in my ISA account) and they have a dividend reinvestment capability for dividend paying shares that only costs £1.50 for each reinvestment.
Here is my suggestion if you have a time horizon of 3 years +.
So basically go to tdwaterhouse.co.uk [or some similar broker], open a shares / trading ISA, transfer your existing £2000 ISA money into the TDwaterhouse account, vow never to setup a cash ISA again, and then contribute as much as you can each year to the shares / trading ISA even if it is only a few hundred quid and aim to get to the point where you don't have to pay an annual management fee. You can set up an automatic payment from your bank account into the ISA account monthly and contribute as little as £25 a month. You can then set up the account to automatically purchase whatever shares you want on a monthly basis for a commission of only £1.50 [this is at TD waterhouse].
Next select what you want to purchase. Forget cash savings. Inflation is running at 5% so you will erode your money to almost nothing if you don't step up and buy equities. Doing nothing is a greater risk of loss than doing something because of inflation.
If you don't know how to select good dividend paying shares and don't have enough money to build a portfolio of 5-15 companies then I'd recommend that you choose an Exchange Traded Fund (ETF) that tracks the entire FTSE 100 (the top 100 companies on the London Stock Exchange). The yield of the FTSE 100 is around 2.6% right now which means you will get dividends paid to you quarterly totaling this amount for the year which you will then automatically reivest in more shares of the ETF. This reinvestment is what will build up your investment over time. ETFs trade on the London Stock Exchange just like regular shares but they track the index (in this case the FTSE 100) and the managment fee is about 0.3-0.5% of the total holding, so manageable. That's it. Just ignore what the market does, have the dividends set to automatic reinvestment and set up your monthly deposits - even just £25 or £50 [cut out some other spending if you need to in order to invest] and just let the investment take care of itself. You won't pay any other fees except and intitial commission for your first purchase of ETF untis (about £12.50) and then £1.50 for each regular purchase and the annual management fee until you are above the minimum threshold.
In terms of what ETF to buy, iShares is one of the main providers of Exchange Traded Funds (ETFs), which are basically funds that trade like shares on the London Stock Exchange (LSE) and are comprised of holdings in whatever index the ETF tracks. So the iShares FTSE 100 tracker holds shares in all FTSE 100 companies which comprise the FTSE 100 index. The ticker sysmbol for the iShares FTSE 100 tracker is ISF. All you do is enter this symbol in the purchase screen of your ISA trading account when it is setup and then buy however many units you have the cash to buy.
There are lots of other options including a FTSE 250 tracker (ticker: MIDD) uk.ishares.com/en/rc/products/MIDD
(top 250 companies on the London Stock Exchange) etc.
It's all actually quite easy though if you are new to investing it it might sound complex to start with. Get started and push through the hassle - you will thank yourself later in life.
If you need more information on how to do this check out my blog and ebook for parents who want to invest for their children.
Good luck with it!
If you are happy to "ride" the markets with the potential to lose as well as gain, then transferring (and the word transfer is the key here!) your cash ISA holdings to a stocks and shares ISA. By transferring you will retain the tax free status of the ISA. If you chose this route the new company will be able to provide a "transfer in" form. If you cash in your ISA then you will have lost the tax free status of that ISA and will need to use part of this years allowance. Not such a problem if you are not planning to invest any "new" money this tax year, but who knows, you may get a windfall later in the year and have wasted £2,000 of your £10,680 tax free savings allowance this year.
In terms of picking a provider and investments, if you are happy to pick investments yourself, then you may want to consider picking a discount broker. You can access ISA wrappers where you pay little if anything for the admin services. There are several well known execution only, discount brokers out there, off the top of my head, Commshare, Hargreaves Lansdown and Elson Associates and some bigger banks are moving this way too. You get some money added back into your account, as they are able to give back some of the money which they are paid by investment houses and financial advisers generally keep to provide ongoing advice. Bargain! All of their websites have info on investing, which is free and some will offer financial advice, which you will of course have to pay for. Charges can stack up on a smaller investment amounts, so you could save doing it yourself. However, if you are really unsure it may pay to ask for help.
As Longterm says above, trackers can be a good investment choice, as these funds are often cheap and as returns track an index, such as the FTSE 100, your money will be apace with the economy at large. However, bear in mind that equities are often considered higher risk and you may want to include other assets to provide a "buffer" against scary market drops. You could call it putting eggs in several baskets. Some funds offer a broader range of assets and although returns may not look so great at the mo, you might be grateful if markets plummet. This is a matter of opinion and your attitude toward risk taking as Longterm says above, you do have to ignore the short term fluctuations to some extent as investing in stocks and shares is a long term game. Research shows that equities tend to outperform other investments in the long run. However, spectacularly high gains one day, month, year could correspond to equally spectacularly lows the next.
Most importantly check charges and risk profiles of funds on fund fact sheets (they often show the fund as low, mid or high risk) and above all don't do anything you are not comfortable with.
Do you have any other cash savings for emergencies? I know you aren't planning to use this money, but it is often a good idea to have 2 or 3 months salary in cash in something like an ISA that you can access in a crisis.
If you aren't sure about the stock market, national savings do inflation-linked savings where the interest rate goes up if inflation goes up. It is rumoured there will be a new issue soon.
Thanks for all this information. I'm going to print it out and go through it in more detail.
Parietal I do have another cash isa on a fixed rate of 6.99%, but the fixed rate runs out in october I think, at which point maybe I could transfer it to the new product to avoid admin fees?
Lots to think about.....
Your circumstances rule out a pension for this money. Money paid in to a pension plan can not then be taken out until you get to 55 years old (except in certain circumstances). Even then, you can only have 25% as cash with the rest being used to buy you an income.
Longterm -I've found your posts really helpful (and your blog for that matter). However, can you or anyone else clarify something for me? If you make monthly contributions to an ETF aren't you paying ridiculously high trading charges? TD Waterhouse and H&L seem to quote charges starting at about £9 per trade. Or am I getting this wrong?
Many thanks for your kind words on my postings and blog - I am delighted you find it useful. Please do pass it along to friends if you think they might benefit.
As to your quesitons, generally trading charges are deadly for your portfolio so yes, if you contributed say £20 or £50 or £100 a month then £9 would severely eat into your investment and thus your potential growth. TD Waterhouse (perhaps others but NOT H&L) have a regular investment account that allows you to purchase shares on a specific day once a month using a regular contribution plan. You have total control over what you buy and the amount you contribute and it can all be managed and changed online and the commission for the share purchase is only £1.50 for each monthly transaction which is very cheap.
TDWaterhouse claim they are able to do this by aggregating all of the regular contributions into a smaller number of trades on specific days thus keepign the cost down. This may or may not be true. It is possible they are simply trying to rope in as many regular, longterm contributors as possible. Ultimately it doesn't matter as long as we investors benefit.
ETFs trade on the stock exchanges in the same way as any individual company share so in theory (though I've not done it) they could be a choice for a regular contributor investment.
The other way to do it is to simply save the money in a bank account and then make a purchase once a year, though with this you don't benefit form pound cost averaging so I'd probably opt for the regular contribution and be sure to turn on the 'automatic dividend reinvestment option'.
If you want to see an example of a really terrible investment in terms of fees and pretty much everything else see my latest blog posting on this product called a 'Junior Bond'.
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I have just bought a couple of Stocks and shares ISAs via Moneysupermarket. These were fee free as I did the transaction on line.
Tracker funds will tend to be more secure than managed funds but still of course do carry some risk.
I posted a thread on this Junior Bond and Mumsnet has lowered the boom on me and deleted it claiming someone complained that I was advertising my blog in a thread and this isn't fair to other advertisers. While it's true that I am pointing people to my blog as a source of useful information for parents interested in investing, I don't see this information as being 'advertising' or 'unfair'. To the contrary I see it as being helpful. In the case of the Junior Bond posting I think this could save parents from wasting a lot of money on a really rubbish investment product. It makes me wonder if that 'complaint' came from Bounty / Family Investments?
A stocks and shares ISA allows you a maximum of £10,680 yearly allowance. You could invest in a stocks and shares ISA through funds which can give you exposure to higher returns managed by expert fund managers.
I find this article quite insightful when i was looking for more info: www.investoo.co.uk/tips/stocks-and-shares-isa/
And there is also a comparison of 'fund supermarkets which are better than investing through the banks i think because its cheaper and more choice:
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