British taxpayers can take advantage of new tax-free ISA rules from July 1.
Investment experts are urging savers to review their investments to benefit from the higher limit of £15,000 a year.
The new ISAs – dubbed NISAs – also offer more opportunities to invest in equities and bonds than the old savings wrappers.
If a saver had put £10,000 into an ISA with a £15,000 limit 10 years ago, that lump sum would now be worth more than £42,000, according to the Association of Investment Companies (AIC).
Investing the full amount each year for 10 years would have turned £150,000 into more than £258,000, says the AIC.
Savings strategies
AIC director general Ian Sayers said: “Raising the limit means more money can be put to work without paying tax.”
Sayers explained that NISAs also allow savers to split their money between cash savings and equities as they wish rather than sticking to old limits.
“These changes bring more flexibility to investing and let savers change their priorities as their financial affairs change,” he said.
Meanwhile, Fidelity Personal Investing associate director, Maike Currie gives some examples of how NISAs can be utilised at different ages.
For instance, a NISA can be a real alternative to pension saving for under 55s who have spare cash to invest but may want access to the money before they are 55 years old.
“Putting savings into less risky investments means less of a return but the money still grows tax-free,” he said. “Unlike a pension, if a saver needs that money they can take it out and put it back in again when they are better off.”
He suggests changing strategy nearer retirement.
Spreading the risk
“The priority for the over 55s is protecting assets and considering how much money might be needed for retirement,” he said.
He considers savers should look at inflation-linked corporate bond funds to protect their portfolio against inflation eroding capital.
NISAs also allow savers to manage their own funds rather than hand their cash over to a manager, if they have the time and inclination to try to make more of their cash.
“These are flexible investments that can change according to a savers needs at any stage of their life,” he said. “But watch against the risk of putting all the money in a portfolio into the shares of one company or a single asset class.
“Spreading the risk is an important way to safeguard any investment.”
Good article Jim. Your readers may be interested to know they can also invest in property funds within NISAs. We have a number of expats who’ve invested in the TM Hearthstone UK Residential Property Fund via ISA and Pensions as a way of keeping a link to the UK housing market. Happy to supply more info to anyone who’s interested. As always though, potential investors should speak to their financial adviser to ensure it’s suitable for their needs.