Investments  

True Potential warns Nisas could leave you worse off

As new individual savings accounts launch across the UK tomorrow (1 July), advisers True Potential warn the product is not yet fit to curb the savings crisis.

With the launch of Nisas will come the ability to invest up to £15,000 per tax year in either cash or stocks and shares, or a combination of both.

Out of those intending to use a Nisa, 44 per cent of 2,000 people polled by True Potential said they would invest in cash only and just one in 10 are planning to invest the maximum £15,000.

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Daniel Harrison, senior partner at True Potential, said: “If savers use their Nisa allowance to invest in cash alone, their savings will, in almost all cases, reduce in value due to the poor interest rates offered by high street banks.”

Daniel Godfrey, chief executive of the Investment Management Association, said if you had been able to invest £15,000 tax free in an equity fund in the IMA UK All Companies sector over the last 15 years through regular monthly contributions, on average, you would have seen a return of £480,000 compared with £275,000 in a tax-free cash Isa.

Even a more modest £200 a month, would still have grown to a value of £77,000 in a stocks and shares Isa compared with £44,000 in a cash Isa, he said.

Mr Harrison’s comments come after Anna Bowes, financial adviser and director of London-based Savings Champion, warned that advisers who fail to familiarise themselves with transfer and top- up policies of Isa providers and individual product terms could find their clients left out in the cold.

Ms Bowes said two deals from Nationwide - Nationwide Regular Saver Isa (Issue 2) and Nationwide Flexclusive Isa (Issue 7) - will not accept transfers in from existing Isa clients.

Also, one from Hinckley and Rugby Building Society will not allow transfers in from.

The Savings Champion study of existing fixed-term Isa deals also found terms for topping up to the new subscription limit can vary significantly.

Don Wernham, an IFA at Simple Solutions Financial Management, said: “There is a need for greater awareness. People I have spoken to are aware that things are changing, but generally they are unaware of what it is, and so the government should consider a concerted campaign on savings.

“There is a clear role for advisers to play here. The problem we have had is that people have been saving in accounts that are not even keeping pace with inflation, and there is no scope for growth. This has led to a lack of enthusiasm in this financial product.

“As the Isa system changes, savers need to get back to basics and seek advice to set them on their way, understand what they are saving for and set their financial goals.

“I really like the idea of a client logging on to my website and with a few clicks they can add to their investment whenever they like. The easier you make it for people to save the more they will be inclined to make use of their Nisa allowance.”