Your last chance to find an Isa
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Banks are trying to attract savers who have left it until the last minute to take advantage of their annual Isa entitlement. But can you beat the top rates for cash Isas by investing in an equity Isa? We take a look
The tax year ends at midnight on 5 April and anyone who fails to use their £7,000 investment savings allowance (Isa), which is exempt from income tax or capital gains tax, by then will lose it forever.
For those planning to invest in an Isa this tax year, 73% will put their money into a cash Isa, according to a survey from Moneysupermarket.com.
“Given the recent market turmoil, it’s unsurprising people are leaning towards cash Isas,” Kevin Mountford, head of savings at Moneysupermarket, says.
“People who are really nervous should stick to cash, but equity Isas can be considered by savers looking to invest over the longer term.”
Earn more interest
Should you consider an equity Isa?
An equity Isa is managed by a company which puts the money you and other investors contribute into stocks and shares.
This means the balance of your money can go up and down, depending on how these shares perform, so you should seek independent financial advice before parting with your savings.
Despite recent market conditions, Rebecca O’Keeffe, head of investment at fund supermarket Interactive Investor says you shouldn’t necessarily be put off by market turbulence when considering whether to invest in an equity Isa.
“If you’re worried about the short-term prospects for the equity markets, bear in mind you can either put your money in cash within the account or invest in an Isa-eligible cash fund that will act as a haven for the short term,” she says.
“This will allow you to invest it later in the year, when you’re happier with market prospects.”
There may be some practical drawbacks: some providers of equity Isas don’t offer a cash fund; the interest paid on the cash portion may be minimal; or the cost of switching out of, and back into, the equity fund may be high.
Despite these restrictions, some financial advisers believe equity Isas can perform well in 2008. We list their top picks.
by Martin Pegan, 1 April 2008
