Apr
20
Should I invest in a cash ISA?
Filed Under Credit Cards, Debt Reduction
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Should I invest in a cash ISA? With interest rates so low and, worse still, savings rates so low, I have to question the wisdom and advice that some financial advisors are giving their clients right now and telling them to go ahead and invest in a low paying cash ISA.
All things being equal, it seems a nonsense to me. If you have money in the bank saved up for day to day emergencies, a long term savings plan in place for those larger items you want and around 3 to 6 months money stashed away for redundancy protection until you get another job, then I believe you should use all your spare savings to pay back unsecured (or secured) debts.
Let’s look at some figures to make it easy for you. You have £3,600 now and you’re not sure what to do. ISA rates are around 1% (say) but the debt on your credit card (ignoring introductory rates and special deals and assuming you are only paying the minimum) is around the 19.9% mark. “DO THE MATH! ” (as the Americans would say). To be able to earn enough to offset your credit card payments you would need to earn a credit rate of 24.875% (assuming you’re a basic rate -- 20% -- tax payer). Compare 24.875% against 1%.
Conclusion: PAY OFF SOME DEBT and start turning the tide of compound interest back in your favour.