ISA season is well underway, which makes it a very exciting time for savers! Furthermore, the market has been hit with a number of curveballs over recent months due to inflation, the Ukraine conflict and the lifting of pandemic restrictions. So, what should investors expect to see this ISA season?
ISA season: predictions from an ISA expert!
Andrey Dobrynin, managing director at InvestEngine, has shared his predictions on what savers should expect in the final stages of ISA season.
Inflation could decrease the value of cash ISA savings!
The ISA expert explains that rising inflation could reduce the value of ISA savings. In the UK, inflation is expected to rise to 6%, which will heighten the cost of living crisis.
Right now, the majority of cash ISAs are offering less than 1.5% interest rates. As a result, the value of cash ISA savings are falling sharply below the cost of living. Dobrynin recommends that savers reconsider their ISA approach and shop around for ISAs that offer higher rates.
New cash ISAs are on the rise
Some 75% of all new ISA accounts are cash ISAs. However, Dobrynin feels that new ISA customers are not given enough information about the risk of losing money in the long term. The expert says that just as investment products have a ‘capital is at risk’ warning, cash products need to have one too.
According to Andrey, “Banks providing current accounts or cash ISAs need to be providing more information to consumers on the impacts this could have on the real value of their money shrinking – especially if they are locked in for the long term.”
Only half of investors understand ISA fees
If you’re looking to open an account this ISA season, it is important that you understand fees. Despite regulatory intervention, research shows that only 56% of ISA holders ‘fully understand’ the fees involved with opening an ISA. Furthermore, fee awareness is lowest amongst older and less-experienced investors.
Not understanding the fees involved could see you running into unexpected bills. In particular, Dobrynin recommends looking out for hidden costs such as exit fees. Many less-experienced investors choose to take the easiest route and fail to consider the fees involved with having an ISA.
Dobrynin says that investors can reduce fees by investing in ETF-based portfolios instead. These accounts offer a degree of automation that minimises the costs involved in holding one.
How to make the most of ISA season
ISA season refers to the time of year when the majority of ISA accounts are opened. As a result, many providers increase their offerings to attract new clients.
According to Dobrynin, you can make the most of ISA season by looking out for new accounts offering the highest interest rates. You should also use this time to educate yourself about the costs and risks involved with opening an ISA. This will help you to make better decisions regarding your investments and avoid losing money.
Our list of top-rated cash ISAs for 2022 is a great place to start shopping around!
Don’t leave it until the last minute: get your ISA sorted now!
If you’re looking to invest in shares, ETFs or funds, then opening a Stocks and Shares ISA could be a great choice. Shelter up to £20,000 this tax year from the Taxman, there’s no UK income tax or capital gains to pay any potential profits.
Our Motley Fool experts have reviewed and ranked some of the top Stocks and Shares ISAs available, to help you pick.
Investments involve various risks, and you may get back less than you put in. Tax benefits depend on individual circumstances and tax rules, which could change.
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About the author
Ruby is a freelance writer who enjoys writing about all things personal finance. After embarking on her own side hustle journey three years ago, Ruby is passionate about helping others to learn about the ins and outs of persona… Read More
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