Cash Is Still King For ISAs…But Why?

Cash Is Still King For ISAs…But Why

The ISA season will soon be under way with financial institutions falling over themselves to attract you to their ISA offering. Of the £80.2 billion invested during tax year 2015 / 2016, a massive £58.8 billion or over 73% was invested in cash. But why was this?

After scouring the cash ISA comparative league tables, it is difficult to find  interest rates much over 1% certainly if you discount banks that most investors wouldn’t have heard of. Interest is, of course, tax free from ISAs but the first £1,000 of deposit interest is tax free anyway for basic rate taxpayers (£500 for higher rate taxpayers) so you would need to have a sizeable chunk of capital on deposit for the cash ISA to be an useful component for your portfolio.  Stockmarkets, by contrast, have been generally roaring away in recent months with the FTSE100 returning 19% during 2016 although this was fuelled by Brexit fallout and sterling depreciation.

Inflation is coming so put on your tin helmets, forecast to be around 3% within a short span of time. If you are only earning 1% from your cash ISA you will be looking at a racing certainty – capital depreciation in real terms.

Time to have another think maybe?