CASH ISAs for Investment Clients of Green Financial

Are you an investment client of Green Financial?
Are you considering a CASH ISA for the tax year 2012/13?

And possibly one that locks you in to the product for a number of years?

As a rule, for clients who have previously stated to me they have sufficient accessible cash, unless you have a need to accrue more cash for emergency purposes (and I’m assuming this isn’t the case if you have opted for a fixed term cash ISA where you lock the money away) I am not currently recommending cash ISAs

If you are simply rolling an existing ISA over, to obtain a better rate – or transferring an existing cash ISA to a better rate, that makes great financial sense.

And as above, if you are wishing to accrue more cash for a specific purpose, then sheltering the interest from tax makes sense.

But for most (not all) Green Financial planning clients we have already considered the amount of cash you have available.

Based on this, and on the premise that in the future, we are aiming to help you provide tax efficient income and capital for when you are no longer working, the current numbers don’t seem to stack up for cash ISAs

The current official rate of inflation on the Bank of England Website is 3.4%

On the day of writing this, the last day of the 2011/12 tax year, using my professional sourcing software I can recommend cash ISAs paying up to 3.5% for instant access.

MoneySavingExpert.com shows instant access rates at 3.1%

I can recommend products where you lock your money away for a year and it goes up to 3.6%

Lock your money away for 5 years and rates of around 4.5% are available

So if inflation remains the same (ie doesn’t go up) you’ll earn a real return of 0.1%, on the best instant access ISA. Using the maximum £5,340 that is just £5.34 a year. If you locked away for 5 years in year 1 you’d be earning £53.40 – I know every little helps but it hardly seems worth locking away £5,000+ to earn £50 to me?

And if inflation goes up – it will eat into that real return.

And many people feel the official rate of inflation is not realistic. Many people report things like petrol, heating costs, food bills etc going up far in excess of 3.4% which means in real terms you may be even lose money in terms of spending power over the term of the product

Anyway, just my thoughts as your professional financial adviser.

But to reiterate, this blog post is not intended to be personalised financial advice. If you have other reasons for investing in cash ISAs they may well override what I have typed here. If you wish to discuss your own personal situation as a client of Green Financial I’d be delighted to speak.

But as a general rule, for those clients that have a financial plan, whereby we have already taken into account your cash savings, and given the current rate of returns on ISAs compared to the rate of inflation (official and ‘real life’) and given the long term nature of a financial plan, I do not think cash ISAs make much sense today.