Top tips for maximising your ISA returns

At a glance

• The £20,000 ISA allowance remains one of the smartest ways to save income and capital gains tax-free, in both the short and long term, so it should always be part of your financial plan.
• Investing in a mix of Cash and Stocks and Shares ISAs may give your money the best chance for greater growth.
• We can help you rebalance your cash savings against your stocks and shares investments, to make the best of the markets, and potentially grow your money. Please note that St. James's Place do not offer a Cash ISA.

Are you getting the most from your ISAs?

‘Max out your ISAs. It’s a familiar tax year-end mantra – and topping up before April 5th is an annual to-do at this time of year for most savers and investors. But while it’s key to put as much into your ISAs as you feel able to, it’s also important to know that what you hold is still giving you real value for money. If you’ve got more than one ISA (and maybe even a Junior ISA for children or grandchildren) knowing how each one fits into your overall financial plan is key.

As your own life goals shift, you may want to rebalance your mix of ISAs and their rate of return. ISAs have to ‘earn their keep,’ especially as interest rates are now slowly coming down.

Tax year-end is both top up time – and review time.

Cash versus Stocks and Shares ISAs – what’s the latest?

Cash ISAs are still hugely popular, for compelling reasons. They offer flexible, straightforward access to your cash. In 2022/23 (the last tax year for which figures are available), the number of savers holding ISAs rose by 2.4% to 63.1% of all savings accounts. Cash ISAs were up by £770,000.¹ Although many savers are still smarting from the recent high rates of inflation and cost of living, the economy appears to be stabilising, wages are rising, and you may find that you’re able to increase any regular ISA payments you make.

Working out which type of ISA is best for you

Cash or Stocks and Shares? It’s not an either/or decision. Both have pros and cons, which means you can play them to your advantage in longer term financial planning. Since they’re conveniently easy to access, Cash ISAs can be a useful ‘rainy day’ fund for unexpected expenses. But their rate of return is fixed by interest rates.

If you’re saving for longer-term goals, such as retirement, or to send your children to University, Stocks and Shares ISAs have a greater potential to grow than Cash ISAs. If you’re holding a lot of money in Cash ISAs or savings accounts, you may miss out when the markets are doing well. Interest rates are less ‘reactive’ to periods of prosperity or stability, so Cash ISAs take longer to ‘catch up’ in terms of returns.

But it’s always important to understand that, since markets fall as well as rise, you are accepting a higher ‘risk’ if you choose to invest solely in Stocks and Shares ISAs.

This is why savers opting for Stocks and Shares ISAs invest in funds – mixed portfolios of investments – which spreads their risk. You can hold a mix of company shares, bonds, and other assets. You can never ‘de-risk’ completely, so it’s key that you talk it through with your financial adviser before you decide to change. If markets fall, the value of your savings will dip. However, the longer you stay invested, the more you average out the ups and downs of the market.

Most people find that a combination of Stocks and Shares and Cash ISAs give the best of both worlds: financial resilience in both the short- to medium-term, coupled with potential to create wealth in the longer term.

These are the four key questions we suggest you consider as we come up to tax year-end:

How long have you had your Cash ISAs?

If you’ve had any of your Cash ISAs for more than five years, then what is a good ready source of cash for emergencies may be becoming part of your long term savings plan.

Over the longer term, you’re less likely to get the same growth from a Cash ISA that a Stocks and Shares ISA could bring Maybe you don’t need to hold as much in a Cash ISA?

So do I need my Cash ISAs?

It’s also worth considering how important Cash ISAs still are in your overall financial plan. Cash ISAs can be life-rafts, if there’s a change in your circumstances. They can reduce the risk of vulnerability, and bring peace of mind. That can be especially reassuring if you have young children, or a growing family.

You can put up to £20,000 into a Cash ISA each year, which is very tax-efficient and versatile.

You have the option to split your £20,000 ISA allowance any way you like across a Cash ISA, Stocks and Shares ISA, and Lifetime ISA (maximum of £4,000), for example, as long as you stay within allowance.

St. James's Place do not offer a Cash or Lifetime ISA.

Are you getting the mix right?

To really make the most of the tax perks of ISAs, it’s usually best to invest in assets which have the potential to do better over time – and that means stocks and shares.  

A Cash ISA for the short- to mid-term, and a Stocks and Shares ISA for the long-term, may be the right mix for your family’s future goals, or your own retirement.

Ahead of tax year-end, it’s worth having a chat with us about your own ISAs to make sure they fit with your ‘bigger picture’ financial plans. We can help you work out how much you want to hold in cash, and how much you feel confident in investing in stocks and shares.

Thinking of changing your ISA mix this tax year-end?

What you need to know

If you have multiple ISA accounts, you may find it easier to keep track of them if you consolidate them into one plan.

If you transfer as cash, you’ll be out of the market until the transfer is complete. You won't lose out if the market falls, but your money won't be subject to any income or growth if the market rises in this period. If you transfer a fixed rate Cash ISA before the end of the term, you may have to pay a fee.

If you're transferring funds from a Stocks and Shares ISA, you'll remain invested until the transfer. You'll be unable to switch or sell these funds while the market falls or rises during this time.

It’s possible, where appropriate, to transfer money out of existing Cash ISAs into a Stocks and Shares ISA without it reducing your allowance for the current year.

You should also be aware that your current provider may charge exit fees.

Catch up with your adviser before tax year-end

Having a regular catch-up with your financial adviser is always a good plan, but coming up to tax year-end it’s even more important. Especially if your long-term plans or
family circumstances have changed in the last twelve months.  

There’s still time to make some tax-smart tweaks to your ISAs and investments – your family will feel the benefit.

Want to see how much your ISA might be worth? Try our ISA calculator to find out.

The value of an ISA with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.

The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.

Sources
¹Gov.uk published June 2023. Accessed November 2024

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