To save or not to save this year?
Banks don't seem to want cash and rules are changing, says Neasa MacErlean
Friday 08 February 2013
Should you invest in an ISA this year? And, if so, what kind? About half the UK population is probably mulling over these questions and millions of us will make some kind of saving before the financial year closes at midnight on 5 April. But many potential savers and investors will be a bit hesitant because conditions have changed over the past 12 months and there are now fewer organisations giving advice.
Apart from the obvious issue as to whether individuals can afford to put money away – up to £11,280 this year – the market has changed. Far fewer people are expected to invest in bonds this season and more are likely to go into equities, including emerging market stocks.
Savers planning to go into a cash ISA might be hoping for some attractive last-minute deals, but they could be disappointed as the banks do not seem particularly eager to compete for ISA deposits.
Some players are expecting a fairly healthy market in the peak season, which usually runs from about now to the end of March. "The stock market is pushing ahead, and there is less bad news around the economy and Europe," says Danny Cox, head of advice at Hargreaves Lansdown, provider of the low-cost Vantage platform for holding ISAs.
Fidelity, the largest provider of equity ISAs in the UK, says that ISA sales increased by nearly two thirds (63 per cent) in the first half of January, compared with a year before.
Meanwhile, Kevin Mountford at MoneySupermarket.com, suspects that the cash ISA market in particular could be less than spectacular this time around: "I wonder if the powers that be want to see us saving at the moment or if they would prefer us to put our hands in our pockets and go out spending on the high street?"
Slightly more than half of the money put into individual savings accounts goes into Cash ISAs rather than equity ISAs. This is the right approach, as anyone with a small amount of savings should keep them easily accessible in cash rather than risking them on the stock and bond markets, where prices can fluctuate dramatically.
But Mr Mountford believes savers who wait for attractive rates to emerge, notably higher than the top rates of 2.5 per cent now in the market, could be disappointed. "Some of the banks don't need the inflows now that they needed in the past," he says. Lending less than they used to, the banks are less dependent on attracting large sums in from savers.
Among investors in equity and bond ISAs, a move from bonds to equities is expected to be "the dominant theme" of this year, according to Fidelity's investment director Tom Stevenson. Experts agree that far more investors will put some of their funds into emerging markets and other riskier homes this season.
"Private investors have not been sticking to the safe options," says Keith Evins of JPMorgan Asset Management, speaking of users of their platform. "The preponderance of Asian, Latin American and global emerging markets funds suggests investors are willing to take on a bit more risk in the search for above-inflation returns."
BlackRock, a leading fund manager, is particularly pushing its Frontiers Investment Trust this year, believing that Vietnam and Bangladesh will be among "the world's fastest-growing economies". Ben Yearsley of Charles Stanley, another ISA platform provider, expects to see more ordinary investors becoming sophisticated enough that they look for niches within emerging markets. "It's not just emerging markets but frontier emerging markets," he says.
United States funds have been top of the best performance tables recently but advisers are not expecting those figures to draw many ISA investors across the Atlantic.
Six of the top ten performing funds in January were US funds, according to Lipper.
But Mr Cox says: "It's quite difficult to find funds that consistently add value over the long term. In part this may be due to the US market being larger and more efficient than other world stock markets."
He does, however, point to two funds he would favour, Legg Mason US Equity and BlackRock North American Equity Tracker.
Income funds will be another sector in demand this season. "With base rates at 0.5 per cent, equities will be a focus this year," says Tom Stevenson of Fidelity. "Early signs are that UK and global equity income funds will be big sellers," says Darius McDermott, managing director of Chelsea Financial Services. He predicts that three funds in particular, Trojan Income, M&G Global Dividend and Newton Global Higher Income, will prove popular with investors.
In years gone by, fund managers have often unveiled new launches in the run-up to April 5 but few managers seem confident of raising sufficient funds in the current climate to make such an expensive step worthwhile.
The 2010 launch of Fidelity China Special Situations, managed by the near-legendary Anthony Bolton, may have served as a lesson to other investment houses as the unit price sank five months after the launch and has yet to regain its initial level.
However, there is at least one launch for the current season, the Matthews China Dividend Fund. But investors do not lack choice. There are, for instance, 2,500 funds offered on the Hargreaves Lansdown platform.
Following major changes in the financial services sector on 1 January, financial advisers now have to be paid in fees rather than taking an automatic percentage commission. This has meant a reduction in the number of advisers. So more investors will probably be using free research sites on the internet.
Investors can also put in up to £3,600 every financial year in cash and/or stocks and shares for children under the age of 18.
But Mr Mountford does not expect exceptional activity on these so-called Junior ISAs this year. "Most ISA investment comes from older and more affluent savers," he says. "For young families it's a bit more difficult. Have people got the money to save for their kids when they haven't got the means to save for themselves?"
One other trend that firms are noticing is a growth in people who invest monthly rather than making one lump sum investment in March.
At Hargreaves Lansdown, the proportion of monthly investors has risen from 16 per cent five years ago to 28 per cent today. This is partly because the allowance has risen so much and will rise further to £11,520 for the 2013/14 financial year. Someone putting in the maximum next year will still have to pay in £960 every month if they spread it out.
Despite the difficulties of the current economic climate, the ISA has gone down well with the public.
There are many people (see case study) who see their ISA as a morale booster, a fund which can help them through difficult times and give them more freedom than other kinds of investment.
"ISAs have been a phenomenal success story," says Mr Cox. "People understand the benefits of using ISAs and their take-up illustrates h
An early starter who can now reap the benefits
Liam feels almost affectionately towards his ISA. "I'm very pleased with the way it has worked out," says the political campaigner. He immediately saw the potential of the personal equity plans, the predecessors to individual savings accounts, when they were introduced in 1987. Since then Liam (not his real name) has tried to invest as much as possible each year.
Now in his early 60s, Liam will probably stop paying in within a couple of years and start living on the income. His ISA saving has doubled as rainy-day money and as a pension plan. Because he has invested mainly in equities, he expects the return in the form of dividends to keep rising. So he sees his ISA as "in essence, like an income-increasing annuity and it's tax-free". He does also have a self-invested pension plan but he prefers the ISA. Like other types of pension, the SIPP produces income in retirement which is potentially taxable.
However, the ISA, which did not benefit from tax relief on the way in, is essentially tax free when the income is drawn.
Liam likes the flexibility of the ISA. He could have taken income or capital from his ISA at any time. With pensions there are restrictions for most people on withdrawals before the age of 55.
- 1 Cyclist who knocked down three-year-old girl says his life has been 'destroyed'
- 2 Chelsea victory parade: Chelsea mocked on Twitter as 'tens of fans' pack the streets of London
- 3 US warned by Chinese media to stop meddling or 'war will be inevitable'
- 4 Woman, 21, dies after taking contraceptive pill that 'caused fatal blood clot'
- 5 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
The day that Britain resigned as a global power
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
EU referendum: David Cameron's rules are a 'democratic disgrace', says French-born Scottish politician set to be denied a vote
A nation of inequality: How the UK is failing to feed its most vulnerable people
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...
Day In a Page
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof