I have about £180,00 in ISAs with banks and building societies which I’ve had for many years but haven’t really thought about what the returns are. I checked recently and am appalled to see that I’m getting less than 1pc. I’ve looked online but am confused about the different rates, fixed terms and types of ISA. Can you explain this for me, please?

Lowestoft Journal: Jeremy Woodruff, Director and Chartered Financial Planner with Smith & PinchingJeremy Woodruff, Director and Chartered Financial Planner with Smith & Pinching (Image: Smith & Pinching)

Jeremy Woodruff of Smith & Pinching responds:

Cash ISAs are always going to struggle to keep pace with inflation while interest rates are so low. Having said that, less than 1pc is particularly low and you may be able to get a better rate. With a fixed term Cash ISA, your money will be tied up for a specific period such as two or five years. Fixed term Cash ISAs may offer you a better rate, but they will still struggle to deliver inflation-busting growth, particularly at the moment.

The other mainstream type of ISA is a Stocks & Shares ISA. This is a portfolio of investments, held in an ISA wrapper and has the potential to out-perform inflation, although investments inevitably have an inherent risk. You can tailor the portfolio to limit investment risk, but the growth potential may be limited as a result. You should review the portfolio regularly to check it is performing as expected.

At this point, I’d like to take a step back from considering types of ISA. Saving and investing shouldn’t be an ad hoc thing that you do when you have the available cash. It should be part of a lifetime plan that considers what you want to achieve at various stages and sets a course to get there. When working with you to build an investment strategy, we would discuss all aspects of your finances to work out those objectives and their timeline. Only then can we put together the right mix of savings and investments in whatever wrapper is most appropriate, including ISAs and pensions.

Your mix of savings and investments shouldn’t be a static thing. You may need to adjust the mix at certain points such as planning for life events (a son or daughter’s wedding, for example) so you don’t risk withdrawing funds from investments when values are low. While you are young and have no immediate need for the invested money, it may be appropriate to take a higher level of risk to optimise growth. All of this should be part of a tangible, specific plan that is all about you.

Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

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