July, the new Isa (Nisa) arrives. Announced in the Budget this year, the Nisa is both a simpler product and allows investors to shield more money away from the taxman. The annual Isa allowance will rise to £15,000, an increase of £3,480 from 2013-14. And while investors have previously been limited in how they can apportion their investments between cash and stocks and shares Isas, the whole allowance can now be placed in one or the other, or in a combination of the two.
But beyond these new freedoms, what does the Nisa mean for investors? Rob Saunders, head of money at Comparethemarket.com, argues that it’s a false dawn. “In March 2014, the average rate of interest on a three year fixed rate cash Isa was 2.04 per cent and now, ahead of the launch of the new “Super Isa”, the average rate... is 1.93 per cent.” But even if an expected rush of money has led cash Isa providers to cut rates on average, there are still good deals around that will beat the current rate of inflation (1.5 per cent on the consumer price index). Coventry Building Society’s instant access Isa, for example, currently pays out 2 per cent a year. And as Darius McDermott of Chelsea Financial Services says, leaving cash in for a couple of years, rather than going for an instant access account, will probably mean a better rate of interest (see table). You do, however, run the risk of potentially losing out on higher returns as the Bank of England raises interest rates.
The Nisa is also an opportunity to consolidate funds currently held outside the Isa wrapper, advises Mike Horseman of Cockburn Lucas. Avoiding income and capital gains tax can make a real difference to returns – especially for higher rate taxpayers.
But given current debate about equity valuations, and whether stock markets are due a correction, the increased Nisa limit may present investors with a dilemma. If you’ve waited until now to fill up your stocks and shares Isa, you will want to avoid the risk of entering markets at their peak. So first, says Jason Hollands of Bestinvest, follow the usual advice and spread your investments around. Second, drip-feeding money into the Isa over several months will help to iron out volatility over the year.
Finally, even if you don’t feel able to commit to investments immediately, most Isa platforms have a cash park facility, allowing you to make a decision when the time is right.