Money: ISAs are bad for our sanity

With interest rates so low, the new tax-free ISA savings accounts at banks and building societies are going down a storm. But falling for the seductive rates - up to 6.75 per cent - could rob you of pounds 4,000 of tax-free stock market savings this year.

Here's why: as soon as you sign for a cash mini ISA, you can only save a maximum pounds 3,000 in a mini stocks and shares ISA. If you had opened a maxi ISA account, you would get a total cash and share allowance of pounds 7,000. So saving between pounds 1 and pounds 3,000 in a maxi ISA leaves the rest of the pounds 7,000 to go on the stock market. That's why anyone signing up for mini cash ISAs has potentially lost the chance to invest up to pounds 4,000.

The subject is fiendishly complicated so it's not surprising that people have been going for the simplest ISA option, a tax-free savings account offered by those helpful people at your building society.

While business at the building societies has been booming, things have been sluggish at many fund managers since the crazy end to the last- ever PEP season. The baffling ISA rules don't exactly help to attract the average first-time stock market investor.

We won't see the first official take-up figures for ISAs until the autumn, but last week we had some of the first concrete evidence of fund managers' distress.

Announcing Perpetual's first-half results, chairman Martin Arbib commented that the transition from PEPs to ISAs had "so far had an adverse impact on sales". The company announced disappointing first-half profits and Mr Arbib said business was likely to stay subdued. One of the reasons he gave was that the boom in cash ISAs had already restricted the choices for many investors. If other managers join this chorus, maybe the investment rules will be relaxed a little.

There are a few useful attempts to help customers through the maze - including the newly launched CATmark logo, which will be easily identifiable as a way to spot a good-value stock market deal. But only 11 firms have signed up to display the mark.

Those of you who are still undecided about ISA investments for this year, but know that you want to put at least some savings into the stock market, should choose one of the maxi ISAs that will allow you to mix cash with decently performing stock market funds.

Some ISA fund managers are offering fairly good rates on the cash part of their maxi ISA schemes. Top payers include Virgin (5.75 per cent), Standard Life (5.35 per cent) and Johnson Fry (5.30 per cent).

Other managers with good maxi combinations (this sounds like an order in McDonald's) include Gartmore, Legal & General and Jupiter.

If you have already signed up for a mini cash ISA, you may find you can't open a mini stocks and shares ISA with your favourite fund manager as several don't offer mini ISAs at all. So bad luck if you fancied a mini ISA at (for example) Foreign & Colonial, Equitable Life, Schroders or Templeton.

n i.berwick@independent.co.uk

PROMOTED VIDEO
Arts and Entertainment
tv
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Your picture is everything in the shallow world of online dating
i100
Life and Style
Attractive women on the Internet: not a myth
techOkCupid boasts about Facebook-style experiments on users
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
football
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

HR Business Partner (Maternity Cover 12 Months)

£30000 - £34000 Per Annum 25 days holiday, Private healthcare: Clearwater Peop...

Business Analyst - London - Banking - £400-£450

£400 - £450 per day: Orgtel: Business Analyst - Credit Risk - Banking - London...

Project Manager,Conduct Risk,London,£5-600pd

£500 - £600 per day + competitive: Orgtel: My client, a leading bank, is curre...

Senior Fund Administrator - Edinburgh - £22 p/hr

£20 - £22 per hour + competitive: Orgtel: Senior Fund Administrator, Top Four ...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on