Compare ISAs

By: EconomyWatch   Date: 25 September 2009

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One should compare ISAs (individual savings accounts) and choose the right one in order to enjoy the maximum returns. One should also consider the notice period and penalty for transfer while choosing an account. More importantly, the account should be covered by the Financial Services Compensation Scheme (FSCS).

How to Select ISAs

When comparing ISAs, one should consider whether to choose a cash ISA or a stock and shares ISA. A cash ISA works like an ordinary savings account, while shares and stocks ISAs deal with picking shares or bonds on behalf of investors. One can also split the investments between these two options.

If you wish to use all your ISA cash allowance each year, it is better to compare ISAs and opt for an account with a high interest rate. Even an account with a 1% higher interest rate will multiply into significantly higher returns. Some cash ISA savings accounts offer an extra 1% interest rate for at least six months. However, you should consider the interest rate you will get once the offer period is over. You should monitor interest rates constantly and switch to another account when the interest rate for your existing account becomes uncompetitive. It is good to opt for a cash ISA as a short term option when the stock market is not doing well. Also cash ISAs offer the best interest rates.

You can select ISAs that deal with shares and stocks if you want to take some risks and enjoy the benefits of investing in shares and bonds. If you have a long term investment horizon, it is better to put all or a large part of your ISA allowance in shares and stocks. However, you should choose ISAs that performed consistently over the past few years.

One should compare ISAs and choose the best one based on his or her propensity to take risks. Cash ISAs are good for investors with low risk appetite. Stock and share ISAs are good for long term investors.


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