It can be difficult to decipher what the best options are for you to save and invest your money. With interest rates now higher than they have been for the past 10 years, more people are considering placing their savings into Cash, rather than an invested option, such as a Stocks & Shares ISA. So what do you need to know about these options?
If you look at this from a simplistic perspective, Cash is the safer, short-term option. Typically, Cash ISAs offer an interest rate over 1-5 years, with different options that vary how accessible your money is over this time. Right now, you will be able to find a fairly attractive interest rate for your savings, especially if you are willing to lock your money away for more than a year. From a safety perspective, there is a guarantee with Cash that the monetary value of your savings will not decrease.
An Individual Savings Account (ISA) is an investment vehicle and a tax-wrapper that offers the ability to save and invest without having to pay tax on any gains that are made on the original investment. Stocks and Shares ISAs should generally be viewed as a longer-term saving option. It is recommended that you invest for a minimum of 5 years or longer, so as to ride out any volatility in the markets.
Imagine plotting your stock market investment journey on a graph – if you were to plot it every day, the line is likely to be very jagged, with lots of peaks and troughs at different points in time. However if you look at stock market indexes over longer periods of time (10 years+), although you will still see fluctuation, the line will look a lot smoother and it will be moving upwards.
Another thing to consider right now is inflation. It is currently at its highest level since 1990 and this changes the way that we must think about our saving. To put this in context, £10 in 1988 would be worth £3.98 in 2023 if we adjusted it for inflation. This is called inflation risk and it basically means that if your savings do not produce a strong enough return over longer periods of time then the value of your money is eroded.
With the current economic conditions, Cash ISAs are offering higher interest rates than before which are appealing. The reality is that the rates on offer are still well below the current rate of inflation. As such, investing in Stocks and Shares over the longer term, could be a better option that allows your savings to keep up with inflation.
Whether it is within an ISA or a different tax-wrapper, investing in Stocks and Shares always carries a level of risk because your investment could fluctuate in value and you have the ability to lose money as well as make more. The longer you are able to stay invested for, the greater chance you have of making a significantly positive return.
There is not a right or wrong option. It depends on what your goals are, what level of risk you are willing to take and for what time frame you want to invest. It is always worth speaking to a professional, such as a financial planner or adviser, that can guide you towards the best-suited option. If you would like advice on your savings and financial investments, please get in touch with us.
