I remember seeing my first video recorder. It was 1978 and it was a Sony Betamax. It’s owner was justly proud of his purchase even though it must have weighed about 40lbs and was almost the size of a modern day microwave oven. He could record anything he liked from a choice of 4 TV Channels, as long as he was in at the time or held a Phd in Applied Physics and thus could programme the timer. Even the “remote” had a wire to connect it to the front of the player. Blank 3 hour cassettes were almost £20 and a pre-recorded Film like “Jaws” was a staggering £60. How times have changed. Never the less the Betamax system was a technological breakthrough and superior to the VHS system that arrived and eventually killed off the Betamax system. We have always seen competition and economics kill off other products.
What’s a Betamax video recorder got in common with a cash ISA?
Like the Betamax recorder, cash ISAs are failing to attract customers like they did in their hay day. Being tax free just isn’t enough these days. If the best return on a cash ISA is around 2% and the outlook for inflation over the next twelve months is nearer to 3%, then you are guaranteed to lose 1% over the year. The benefit of tax free growth is lost if there is no real growth. You just lose a bit less in real terms.
Enter the VHS of the ISA world
We all know that in the long term investment returns are usually higher than the returns from bank deposits. When we could get a 5% return on cash, a cash ISA was worth having as it carried no Investment Risk. But now we are not even being recompensed for the Inflation Risk we are taking. The banks are making more money on our cash ISAs than we are! Their margins have never been higher.
Many of our clients have already benefitted from the superior returns we have achieved on the ISAs we manage for them. In return for taking an acceptable level of Investment Risk, they have been rewarded with returns well above inflation. Cash ISAs are being wiped out by their more successful siblings, in the same way Betamax was wiped out by VHS.
Can anything be done with existing cash ISAs?
Not many clients are fully aware that cash ISAs can be transferred whilst still retaining their tax-free status. Transferring an ISA does not affect this years annual ISA allowance either. So even if you had £200,000 in Cash ISAs, the whole balance could be transferred to an ISA we can manage and you could still invest this years ISA allowance on top.
Are you talking about a stocks and shares ISA?
We prefer to call them full ISAs as these days most investments can be held within an ISA. When PEPs first started they were higher risk because they could only be invested in a narrow range of shares. Today shares, gilts, corporate bonds, property and even gold can be held. The name has not evolved although the investment opportunity has.
Can you Help?
It would be like pouring salt on a wound for us to point out the poor returns available on cash ISAs, without trying to help. So for the month of April we will waive our initial charges for those clients who wish to transfer their cash ISAs to an ISA we can manage. Giving you a free transfer option will help your savings beat inflation this year. If you are tied up in a fixed term ISA just tell us and we will agree to do a transfer for free when the fixed term comes to the end.
Why are you doing this?
We are not making an initial charge because we now have the investment scale and the operational efficiency to be able to do this. We will move your cash ISAs for free – you only have to ask.
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