The answer is an overwhelming yes. It’s a no brainer.

I was reading the recent addition of Hargreaves Lansdown’s ‘Investment Times’ magazine and there was an article written on whether ISAs (in general) are a thing of the past.

This shocked me because why would someone not want to use an ISA? It’s the perfect way to grow your wealth tax free. And this is what inspired this post (I have previously written a post on maximising your wealth using ISAs here).

If you’re not using one, you should be.

80% Are Cash ISAs

The first notable thing that the article mentioned was that 80% of all ISAs are Cash ISAs.

Before we go any further, just a reminder than ISA stands for Individual Savings Account. There are four different types of ISA (cash, stocks & shares, lifetime, innovative) and we are able to contribute £20,000 per year across these 4 types.

Such a high proportion of ISAs being Cash ISAs really surprised me. Personally, I have neither used a Cash ISA (apart from a Help To Buy ISA, which is technically a Cash ISA), because the rates have always been so low.

Locking your money up for 2-5 years at a fixed rate less than inflation doesn’t really make any sense to me. Especially when, until recently when all rates were cut, you could get an easy access savings rate of 1.5%, without needing to lock up your money.

Stocks & Shares ISAs Are Edgy

I think if you mention an ISA to someone else, they automatically think you’re talking about a Cash ISA.

From the content I’ve produced before about using an ISA on social media, I’ve gotten some comments from people saying ‘rates are so low’ and how ‘ISAs are pointless’. Clearly, they thought I was talking about a Cash ISA, when in reality I was talking about using a stocks & shares ISA.

Maybe people just aren’t aware of stocks & shares ISA. Or it’s probably more likely that they’re unaware of the benefits – where you can literally buy any index fund, ETF, or stock, and that money can grow tax-free forever.

As opposed to using a Cash ISA, where you lock up your money for a fixed period and can’t even beat inflation.

The answer is an overwhelming yes. It’s a no brainer.

I was reading the recent addition of Hargreaves Lansdown’s ‘Investment Times’ magazine and there was an article written on whether ISAs (in general) are a thing of the past.

This shocked me because why would someone not want to use an ISA? It’s the perfect way to grow your wealth tax free. And this is what inspired this post (I have previously written a post on maximising your wealth using ISAs here).

If you’re not using one, you should be.

80% Are Cash ISAs

The first notable thing that the article mentioned was that 80% of all ISAs are Cash ISAs.

Before we go any further, just a reminder than ISA stands for Individual Savings Account. There are four different types of ISA (cash, stocks & shares, lifetime, innovative) and we are able to contribute £20,000 per year across these 4 types.

Such a high proportion of ISAs being Cash ISAs really surprised me. Personally, I have neither used a Cash ISA (apart from a Help To Buy ISA, which is technically a Cash ISA), because the rates have always been so low.

Locking your money up for 2-5 years at a fixed rate less than inflation doesn’t really make any sense to me. Especially when, until recently when all rates were cut, you could get an easy access savings rate of 1.5%, without needing to lock up your money.

Stocks & Shares ISAs Are Edgy

I think if you mention an ISA to someone else, they automatically think you’re talking about a Cash ISA.

From the content I’ve produced before about using an ISA on social media, I’ve gotten some comments from people saying ‘rates are so low’ and how ‘ISAs are pointless’. Clearly, they thought I was talking about a Cash ISA, when in reality I was talking about using a stocks & shares ISA.

Maybe people just aren’t aware of stocks & shares ISA. Or it’s probably more likely that they’re unaware of the benefits – where you can literally buy any index fund, ETF, or stock, and that money can grow tax-free forever.

As opposed to using a Cash ISA, where you lock up your money for a fixed period and can’t even beat inflation.

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Record Lows For Stocks & Shares ISAs 

In the Hargreaves Lansdown article that I read, it said that in the 2018/19 tax year there was the lowest uptake of stocks & shares ISAs ever.

I imagine this trend won’t continue in the 2019/20 tax year. Due to COVID-19 and lockdown, more people have started investing who may not have had they not had more free time.

Regardless, it’s crazy how few people make use of stocks & shares ISAs, and the fact that this number has been dropping over time.

When it comes to growing your wealth tax-free through the stock market, stocks & shares ISAs are actually very generous when compared to other countries. From speaking to people in the US, Canada and Australia, they don’t get anywhere near the £20,000 allowance that we get in the UK. For example the US have an allowance of $6,000, from a quick Google search.

On top of this, the article displayed a graph showing the number of subscribers to stocks & shares ISAs from 1999 – 2019.. Disappointedly (but not surprised) the age range of ‘Under 25’ had the lowest subscribers by a large amount.

The Under 25 category had roughly 700% less subscribers when compared to the age ranges of 45-54, 55-55 and 65 and over.

There are roughly 75,000 people who are Under 25 with a stocks & shares ISA. Unsurprisingly, as the age increases the number of stocks & shares ISAs increases, up to roughly 650,000 for the 65 And Overs. 

Start Young

Whilst this graph wasn’t surprising, as in general people put off investing, the earlier you start the more you can benefit from compound interest.

Even if you can only invest £50 a month, it’s definitely worth doing so. Only the years these contributions will compound more than you can imagine.

The two most important rules when it comes to investing are:

  • Invest early
  • Invest often

Use a Stocks & Shares ISA

Ideally, we should make every investment inside of an ISA.

This is because once our money is inside of an ISA, it is able to grow tax free forever.

If you were unaware of stocks & shares ISAs, or simply not using one, now is the time to start.

Finally – ISAs Over Pensions?

Hopefully now you have seen, or continue to realise, how good ISAs are. But are they better than pensions?

In a word – yes.

I think ISAs are better than pensions for two main reasons:

  1. With an ISA you pay tax now. You have already paid income tax and contribute to an ISA out of your net pay. With pensions it is the opposite, you avoid income tax now, but will pay some tax when you withdraw your money. If you build some serious wealth in your pension (£1m+), you will be taxed very harshly.
  2. Taxes will likely increase in the future in order to pay back all of the money that the government has been printing. And in general taxes tend to increase over time. This is just speculation though, although it is likely. The real answer is that it is hard to predict the tax system and where it will head – there is uncertainty. I would rather lock in my money to a stocks & shares ISA now, having paid tax, rather than risk paying higher tax in the future when I withdraw my pension.

Personally, I think the best approach is to contribute to your pension up until your employer match, and then put everything else inside a stocks & shares ISA.

To end this post, as I have bored you with already – make sure you’re using a stocks & shares ISA.

Record Lows For Stocks & Shares ISAs 

In the Hargreaves Lansdown article that I read, it said that in the 2018/19 tax year there was the lowest uptake of stocks & shares ISAs ever.

I imagine this trend won’t continue in the 2019/20 tax year. Due to COVID-19 and lockdown, more people have started investing who may not have had they not had more free time.

Regardless, it’s crazy how few people make use of stocks & shares ISAs, and the fact that this number has been dropping over time.

When it comes to growing your wealth tax-free through the stock market, stocks & shares ISAs are actually very generous when compared to other countries. From speaking to people in the US, Canada and Australia, they don’t get anywhere near the £20,000 allowance that we get in the UK. For example the US have an allowance of $6,000, from a quick Google search.

On top of this, the article displayed a graph showing the number of subscribers to stocks & shares ISAs from 1999 – 2019.. Disappointedly (but not surprised) the age range of ‘Under 25’ had the lowest subscribers by a large amount.

The Under 25 category had roughly 700% less subscribers when compared to the age ranges of 45-54, 55-55 and 65 and over.

There are roughly 75,000 people who are Under 25 with a stocks & shares ISA. Unsurprisingly, as the age increases the number of stocks & shares ISAs increases, up to roughly 650,000 for the 65 And Overs. 

Start Young

Whilst this graph wasn’t surprising, as in general people put off investing, the earlier you start the more you can benefit from compound interest.

Even if you can only invest £50 a month, it’s definitely worth doing so. Only the years these contributions will compound more than you can imagine.

The two most important rules when it comes to investing are:

  • Invest early
  • Invest often

Use a Stocks & Shares ISA

Ideally, we should make every investment inside of an ISA.

This is because once our money is inside of an ISA, it is able to grow tax free forever.

If you were unaware of stocks & shares ISAs, or simply not using one, now is the time to start.

Finally – ISAs Over Pensions?

Hopefully now you have seen, or continue to realise, how good ISAs are. But are they better than pensions?

In a word – yes.

I think ISAs are better than pensions for two main reasons:

  1. With an ISA you pay tax now. You have already paid income tax and contribute to an ISA out of your net pay. With pensions it is the opposite, you avoid income tax now, but will pay some tax when you withdraw your money. If you build some serious wealth in your pension (£1m+), you will be taxed very harshly.
  2. Taxes will likely increase in the future in order to pay back all of the money that the government has been printing. And in general taxes tend to increase over time. This is just speculation though, although it is likely. The real answer is that it is hard to predict the tax system and where it will head – there is uncertainty. I would rather lock in my money to a stocks & shares ISA now, having paid tax, rather than risk paying higher tax in the future when I withdraw my pension.

Personally, I think the best approach is to contribute to your pension up until your employer match, and then put everything else inside a stocks & shares ISA.

To end this post, as I have bored you with already – make sure you’re using a stocks & shares ISA.

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