ISAs: facilitating savings for all UK consumers
Since their introduction in 1999, ISAs – or individual savings accounts – have gone on to be adopted by all types of consumer looking to make the most of their nest egg with the added bonus of being tax efficient.
Originally, the ISA was brought to the market as a replacement for existing products like personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs). Now, according to figures from the end of 2009, there have been well over 19 million ISA accounts opened across the UK – proving they have truly become a mainstream solution for the masses.
However, even though people of all ages and financial standings are enjoying the benefits they bring, there are still some serious misconceptions about fixed rate ISAs and their variable rate siblings.
One such belief is that the product is specifically targeted at consumers looking to make a long-term investment. Although it is true leaving funds in an ISA for a long period of time is a great way to make the most of them, it should also be noted the facility also provides a solid option for the short-term.
So, before we get to money saving tips and how to get the best ISA rate, it might be worth explaining briefly how the products work. When you set up an ISA you will be offered an initial choice. If you decide to put your money into one of the many cash ISAs available, you’ll effectively be getting a high interest savings account that operates on a tax-free basis. However, a stocks and shares ISA means your provider can pick equities, funds or bonds on your behalf.
Of course, it could feel as if, with so many options available, finding the best ISA deal is a potential minefield. But as long as you know exactly what you want from the scheme this doesn’t have to be the case. Long-term investors looking to make as much as possible from their nest egg might want to consider fixed-rate ISAs, as locking away cash for a greater time can ensure that they make the most of the rate they attain. It has been predicted by some economists that rates may stay low for the most part of 2011, but should rates increase at a later date, savers who have accrued larger sums with their fixed rate ISA may find they are in a strong position.
But that is not to say a variable rate option is not without its benefits. As interest rates go up and down, ISA holders may find that when the economy strengthens and the country has fully emerged from recession, their package may begin to work much harder for them. But of course, this is all dependent on the decisions the Bank of England makes for the rest of the year.
About the Author: George Pardew is an independent author on finding the best ISA rate.
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