As the end of the financial year in the UK approaches on the 5th April, the Banks and other Financial Institutions are bombarding the population with advertisements and inducements to take out an Independent Savings Allowance (or ISA for short).
To those of you not acquainted with them. an ISA is a tax-exempt savings plan. The annual allowance for a Stocks and Shares ISA is now £10,200. The investment is tax free – so any income received will be free from personal income tax and any capital gains which arise are tax free too! Allowances on ISAs which are not taken out in a particular tax year cannot be carried forward to the next year, so that particular allowance, if not used during the year in question, is lost to any taxpayer who chooses or is unable to take out an ISA in that financial year.
I certainly don’t claim to be a qualified Financial Consultant (though it is one of my past careers – please don’t hold it against me) and absolutely don’t seek to offer anyone specialist financial or taxation advice, but I can still give my opinion on the merits of ISAs against other options.
I do know there was a report in the UK recently about how Banks are ripping off customers with low and misleading ISA rates. It appeared in the Daily Mail newspaper on 16th March 2011. According to this report, millions of savers are being cheated out of up to £920 a year tax-free interest on their cash ISAs. It compared the interest rates banks and building societies pay on taxed, fixed-rate savings bonds with that paid on fixed-rate cash ISAs. Nearly every bank and building society pays less on cash ISAs. In the worst cases, the difference is as much as 1.35 percentage points.
By paying less interest on cash ISAs, the banks effectively boost their profits by pocketing these tax perks at taxpayers’ expense. Some people who thought they were getting 3% (and that’s a pitiful return in itself) were actually getting less than 1% and in some cases some accounts were at 0.01%.This of course gets no mention in their glossy ads.
How disgraceful, but such is the low regard in which banks are now held in the UK that it has attracted little condemnation.
But it did get me thinking.
Investing a typical £3000 in an ISA to get a 1% return seems like a waste of resources to me. You could take less than 3% of that amount (£100), start your own online business and get a return 100+ times greater than the paltry 1% from the ISA.
$10 Domain Name
$30 Website Hosting
$50 Some Plug-ins and Graphics to make the site look professional.
$20 per month Autoresponder service.
Plus about 5 hours invested in setting up a site and then
posting content for links back.
So, total UK sterling invested about £60, then about £12 per month and time.
And what about the returns?
If this site ONLY returned on average £10 a day in earnings
then your return would be £300 per month or £3600 a year.
COMPARE that to 1% with £3000 invested!
I certainly know which one I prefer as a business or investment model.
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