Are you a savvy saver?

We all want the best for our children. For many parents this means a secure financial future, but when it comes to savings and investments – do you really know exactly what it is you’re getting in return?

New ISA rules are coming into effect on 1st July 2014 which will allow people to put a maximum of £15,000 into a new ISA (NISA).

However, Scottish Friendly are warning savers to be wary of being drawn automatically into holding all their ISA funds in cash.

Instead the advice given is to consider the alternative funds available through ISA investments.

Sounds complicated?

It’s actually quite simple.

ISAs or as they’re now known NISAs (New-ISAs) are a tax free account for your savings and investments.

The idea of these types of accounts is that you pay less tax which means you increase your returns.

In anticipation of the launch of the NISA, a number of savings providers have already started to lower their already low interest rates even further in recent weeks.

Neil Lovatt, Scottish Friendly’s Director of Financial Products, said: “For every one investment ISA taken out, three cash ISAs are opened.

“Cash is easier to understand as it offers security and access to the savings without penalty that investment ISAs do not. People are being put off by what they think is pure equity investments and instead are opting for accounts that offer poor returns on their cash.

“The changes introduced in the budget gave savers a glimmer of hope and incentivised people to put more money aside each month. However, the Cash ISA market has not risen to the opportunity, instead choosing to offer low rates of interest on cash ISAs and in some cases actually reducing their rates for fear of overly high inflows”.
Scottish Friendly’s My Prosperity New ISA invests in a with-profits fund, which offers a balance of investments including stocks and shares, cash, fixed interest and property funds. The investment also guarantees that if the investment is cashed in on its tenth anniversary the investor is guaranteed to get back at least the amount originally invested provided all payments have been kept up to date and no withdrawals have been taken.

When the investor cashes in or takes a withdrawal from Scottish Friendly’s My Prosperity ISA, the value of units may either be increased by a final bonus or reduced by a market value reduction (meaning the investor could get back less than has been invested) to bring it into line with the performance of the assets within the With-Profits fund. 
A cash NISA is a simple savings account where the interest isn’t taxed. With this in mind the chances of a normal savings account paying out more interest are quite slim.
An investment ISA is an alternative to a cash ISA. More commonly known as a stocks and shares ISA, you can put money into different investments and and keep any growth or profit earned tax free.
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