Amid all the fun, joy and laughter, starting a family no doubt brings about a myriad of challenges of its own. One of the biggest is saving money. Squeezing the budget to feed, clothe and maintain two of you is a whole lot cheaper than doing so for three, four or five, and your wallet can often feel more like a sieve than something that actually retains money!
But saving for your family’s future remains one of the more important tasks on your monthly to-do list, and with a myriad of (often bad!) options out there, it isn’t always easy to know how best to get the most from your squirrelled-away pennies.
The ISA option
Isa’s have been popular with many savers since they came about at the turn of the century, and why not. Most people aren’t even aware of it, but typical savings have always been taxable. So, to put your money into a Cash ISA, as opposed to a typical savings account, makes sense. After all, you pay less tax, usually get better rates, and do so for no added risk. No brainer, right?
Things have changed in recent years though. Cash ISA rates have plummeted since the recession, and simply don’t offer the carrot they once did. Annual rates of roughly 1.3% are about as good as you can hope for with a typical ISA, so it isn’t going to set many of our lives on fire.
Furthermore, the introduction of the Personal Savings Allowance (PSA) has made Cash ISAs even less appealing. For those who pay basic-rate tax, you can now shield up to £1,000 in interest on savings from tax. That means you’ll need to have an awful lot of savings in the bank before HMRC come knocking. For higher rate taxpayers, the amount you can shield drops to £500, which is still substantial (additional rate taxpayers don’t qualify for the PSA).
Making the most of your choices
In recent years the individual ISA allowance has shot up to more than £15,000, but is this redundant because of the PSA? Not necessarily. There are different types of ISA which have made the market more dynamic. For example, there is now the Help-to-Buy ISA, which is a scheme that involves a 25% top up to annual savings by the Government for aspiring first-time buyers, up to a maximum of £12,000 saved (ie: a bonus of £3,000). This ‘free money’ is given to you when you decide to use the funds to cover the deposit, and is valid for homes valued up to £250,000 outside of London, and £450,000 within.
If the housing ladder isn’t what you’re after – or if you’re already on it – another potentially lucrative alternative is peer-to-peer lending, which now has a new ISA exclusively dedicated to it. Peer-to-peer lending, as the name suggests, involves lending your money directly to fellow consumers seeking a personal loan via on online platform, and, given the efficient and direct matching process, you as a lender benefit from annual returns of around 6%. It’s thus no surprise that it’s grown in popularity, and given that you can now shield returns from tax through this ISA, it will likely appeal to many more savers. However, it’s worth noting that there is a risk of the borrower defaulting on their loan repayments; albeit that platforms are regulated by the FCA and tend to have robust measures in place to mitigate these risks.
Deciding what’s best for you
There are other ISAs out there too like Stocks & Shares ISAs, while others may prefer to put money towards pensions and other investments. It always comes down to personal choice, and deciding what levels of risk to marry with the rewards. What’s important to note is that there are many more options at your disposal than simply sticking your money in the bank, and it really is worth taking a bit of time to research them.
After all, one thing we quickly learn as parents is that life doesn’t get any cheaper as the years go by. All we can do is take care of things from our end, and do our best to ensure that our family’s long-term future is as secure as possible.
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