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OK people, Cash ISAs.
Yes the interest rates are very low, too low and are in fact below inflation and therefore do not make money over the long term. That is actually quite a normal state of affairs and in fact if you invested £100 in the average performing non-taxed Building Society savings account in 1950, with all the interest rolled up it would today have the same purchasing power as £60.87 on the 31st December 2009. It would actually be £1,557 compared to the need for it to be £2,558 to have the same purchasing power (UK Building Societies Index and RPI).
But note this. Deposit based accounts are necessary for short term cash with which you should not take any risk. That means emergency cash and money for capital needs within at least 5 years.
A Cash ISA is simply a deposit based investment that offers a tax-free interest. So for short term saving they are worth having and an Easy Access Cash ISA can provide interest of between 3% and 3.5% at the moment. Compared to equivilent taxable accounts they do benefit you. Most of these have short term, usually 12 months, bonuses included so you need to review your Cash ISA after a year and be prepared to transfer your money to a new ISA when that period ends. Whatever you do do not cash in the ISA to re-invest, it needs to be transferred and if you do it that way you will still have your current years ISA allowance available as well to use.
You can put up to £5,100 into a Cash ISA this yeat but you need to get in quick before April 5th and then after April 5th you will have a new ISA allowance into which you can place £5,340 before April 5th 2012.
Do not forget that you have a total ISA allowance of £10,200 this year and £10,680 next year, less anything that you pay into Cash ISAs.
Stocks and Shares ISAS tend to be better longer term investments though they can go down as well as up in value, unlike Cash ISAs and that is why Cash is good for short term while Stocks and Shares for long term (over 5 years). Stocks and Shares ISAs can invest in a full range of investments of varying risks including UK and overseas equity funds, debt bond funds, commercial property funds etc.... Advice is necessary for longer term investments because you must understand the risks and how they fit in to an investment strategy so you do not have to encash them at the wrong time.
Incidentally - that £100 mentioned earlier would be £102,938 on 31st Dec 2009 if invested in the average UK share with all dividends re-invested or £7,661 if the dividends were not invested.... A very big difference. (Barclays Equity Index)
Lesson over for today....
I must add though a regulatory point - do not invest into Stocks and Shares ISAs without advice.
