I have savings products in friendly societies (tax free products, maximum investment £25 per month), that have yielded an average return of 4.8 %.
In comparison, the current Cash ISA products have yielded 3% average, but you can invest for 5 years at 5%, on current rates. I am actually wagering at the moment that base rates will rise in the near future IMHO.
So, if these savings are at least maximised, then you will match the friendly society products with the Cash ISA rates, making the most of your tax free allowance.You would be at the mercy of interest rate improvements, so if possible, maximise both.
So, it is safe to say in just comparing 2 products that investing in the stock market is better.
However, family society unit trusts are run by expert investors, who have many years experience of balancing risks versus returns.Thus, even though I follow the mantra of ERE, I am really not a confident investor and would not expose myself to the risk of the stock market unnecessarily. So how do I get confidence?
I have completed a basic fact-finding on investment and it looks like a 'fund supermarket' may be better for the cautious investor, i.e investing in a balanced, medium risk basket of shares.
I have used the guide from Which?, the link is shown below:
|Type of ISA||Value of £1000 ISA after 5 years|
|Best-performing UK All Companies sector fund||£3,000|
|FTSE All-Share Index||£2,050|
|Worst-performing UK All Companies sector fund||£1,450|
|Best Buy instant access|
Figures taken from 31 December 2002 to 31 December 2007 and include charges. Source for stocks-and-shares Isas and FTSE All-Share Index data: Lipper Hindsight
So, it looks like investing in a basket of shares, if the Cash is available, is the better option.
So, I have to find £10500 to take advantage of the full potential of the UK ISA allowance.
Here goes, I have just found 8p, so only £10499.92 to go....