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The "Other" ISA Allowance

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How much is your ISA allowance increasing to for the 2013-14 tax year? If you answered £5,760 you are wrong by 100%. That is the maximum that can be paid into a Cash ISA. The total allowance is increasing to £11,520. However, to utilise this full allowance you will have to make use of an Investment ISA.

The Investment ISA is often missed, even by those who pride themselves on using their allowance on 6th April each year, but why? For one, they are subject to less marketing than Cash ISAs. Secondly, I think they are deliberately ignored by many because they are perceived as risky. In my opinion, in the current market, the real risk is keeping everything in cash.

There is no getting away from the fact that investments paying more than a savings account will have the potential to fall as well as rise, i.e. you can lose money. But currently, with a one year fixed rate bond you are guaranteed to lose money! The top one year fixed rate bond on the market pays 2.25%, whereas inflation, as measured by the consumer prices index (CPI), is 2.7%. Let's suppose you have £10,000 in the bank, you can either buy £10,000 worth of goods and services or put it in a one year bond. If you choose the bond, in a years' time your money will have increased to £10,225. However, assuming inflation remains the same it would cost £10,270 to buy the same goods and services that cost £10,000 a year ago. If you only have £10,225, you have in fact lost £45.

This leaves anyone with savings with three, often uncomfortable choices – accept that your money is losing its value, spend your money now before it loses its value or invest in real assets that have the potential for a real return.

Investing is for the long term and the value of investments can, and at times will, fall. It is therefore essential you keep an easily accessible emergency fund, generally best in a loss-making savings account. However, if you want your hard earned money to stand a real chance of retaining its real value then investing in real assets is your only real option. The "other" ISA allowance may be a good way of starting to do this.

For more details, or to make an appointment with one of our Financial Advisers, please call 01903 821010 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

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