According to the Torygraph, Cash ISAs are four times as common as stocks and shares ISAs. It begs the question, why? Particularly now, when you sweat buckets to try and match RPI, you end up having to lock the cash away for ages in an environment where interest rates will probably have to go up, why do people put up with the pain?
Okay, so I hold one, because in the dying days of FY 2008/09 I came to the conclusion that I may soon not be working due to ugly events at work, and needed to start saving as much as possible against that possibility. I didn’t have much time to think, so I shoveled that year’s savings into a Cash ISA and topped it up a month later in April 09. Then started on a shares ISA – I had liquidated my entire shares ISA holdings in 2007 due to a life changing event, fortunately before the credit crunch 😉
Until 2007, I’ve only even held shares ISAs, initially when they first came out a Virgin FTSE tracker which was one of the few CAT qualifying ISAs for less than outrageous charges. They got poorer value as time went on, and the FTSE100 tanked over the next 7 years anyway.
I also had a Schwab self-select ISA in the dot-com boom and bust to teach myself the hard way why you shouldn’t churn your portfolio. That got sold to Barclays, who, cheeky pups, began to levy charges just to hold the damn thing so they got kicked into touch in favour of iii. My current shares ISA is the first time I’ve got ahead of the game, amazing what a an older and perhaps clearer head does for you, some quality education from Monevator plus sitting on your hands and not churning the damn thing does. That old boy Warren Buffett has a point – if you’re going to buy then buy as if you will hold for ever.
However, I would assert that a Cash ISA has no reason to exist in todays UK financial landscape. It stands charged with several deficiencies:
- Nowadays it loses against RPI, which is the only real measure on inflation IMO
- It reduces the amount you can put in a shares ISA that year
- It comes with strings attached like long lock-in periods if you want a half decent rate
- You can put a maximum of £5340 into one per year
Compare that with the alternative, National Savings Index-linked savings certificates. Okay, so they aren’t actually available at the moment, but are expected to be soon, and if they aren’t you can still open a Cash ISA sometime next year. They have the advantage of
- matching inflation if held to maturity (3 or 5 years)
- relatively immune to bank failures 🙂
- a maximum investment of £30k per issue (in practice about the same as Cash ISA limits with the issue durations but you can front load the purchase as opposed to dripping in year on year with Cash ISAs, should you have a large lump sum to invest)
- Tax free interest
- you can get your stake back at any time, though with loss of the last year’s interest.
What the heck is not to like? What is the point of a Cash ISA these days, and why aren’t they forced to raise their game with the existence of such awesome competition?