Millions of pounds still sit inside cash ISAs earning poor rates of return and this situation is unlikely to change in the foreseeable future.
The question is, was it a mistake by investing in the first place? The answer in many cases is no. The reason is having the option to organise an ISA transfer, which is effectively moving the tax-free ISA value across to a product that might be more appropriate and with the potential for better returns.
This can involve increasing the investment risk, however is does not necessarily mean moving from low to high risk. The most popular choice is for retirees to move cash ISAs across to an income portfolio and although this does mean introducing higher volatility, the income stream from a well-managed portfolio can be extremely consistent, currently delivering tax free monthly income between 3% and 4%.
Alternatively, for those not requiring income, an option to invest into a risk graded model portfolio often provides an attractive solution using the following fund profiles:
- Moderately Cautious
- Moderately Adventurous
What makes this opportunity even more viable follows the introduction of the new Personal Savings Allowance (PSA). This is the amount of interest which can be earned tax free and for a basic rate payer this amounts to £1,000 per annum. A deposit account can be seen as an extension to the cash ISA allowance, leaving your proper ISA open to find a better home.
By Philip Harper | February 2019