While more experienced investors will consider this is a great opportunity to buy shares after valuations have fallen, many will be understandably nervous.
Stock markets appeared to have recovered following a painful 2022, but they’ve slipped back in recent days as investors fear contagion from the US.
The collapse of US banks Silicon Valley Bank on Friday and Signature Bank on Sunday has rattled global stock markets, and the impact has been felt in the UK, too.
The FTSE 100 has dropped around 500 points since hitting its all-time high of 8,000 one month ago.
It recovered yesterday as contagion fears eased, ending Tuesday 1.17 percent higher to open this morning at 7,637.11.
Yet the crisis isn’t over yet. It’s dangerous to call an end to it too soon.
Every UK adult can put up to £20,000 in an individual savings account, or Isa, this financial year, with all returns free of income tax on capital gains tax. Around 13 million are expected to do so.
Brits can put a further £9,000 into a junior Isa, on behalf of a child, grandchild or family friend under 18.
In both cases, they must use this year’s Isa allowance before the annual deadline of midnight on April 5.
That is exactly three weeks away, which means savers and investors cannot put off their decision for much longer.
Isa savers have a choice. They can either play safe with a cash Isa, which is like a standard savings account but with all interest free of tax.
Alternatively, they can invest in a stocks and shares Isa in a bid to generate higher returns. However, this option will scare many who fear making an instant loss.
Investors face a tough choice as markets look set to remain volatile for some time, said Victoria Scholar, head of investment at Interactive Investor. “Stock prices are volatile and you should only invest if you plan to keep your money in the market for at least five years, and preferably longer.”
However, Chris Rudden, head of investment consultants at wealth manager Moneyfarm, is urging Isa savers to stick with stocks and shares Isas despite recent troubles. “Last year’s losses may have come as a shock but history shows that positive years greatly outnumber negative ones.”
Moneyfarm’s research shows that since 1930, a balanced investment portfolio containing mostly stocks and some bonds delivered a positive return in 71 years, against just 21 negative years (of which 2022 was one).
If investing in shares still feels too risky, there is another option.
You could transfer money into a stocks and shares Isa to secure this year’s allowance, but without buying any stocks or investment funds at the moment, said Alice Haine, personal finance analyst at investment platform Bestinvest.
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“Most stocks and shares Isa platforms offer cash accounts, where you can store your money until you are ready to invest it.
“You can invest your money when your are ready or drip feed it into the markets at regular intervals to reduce risk. This will also help those who need more time to select their Isa investments.”
Haine added: “Some platforms provide interest payments on cash balances, so you will get some kind of return on your money while you wait.”
Those who prefer the safety of a cash Isa should shop around for the best rate, with Shawbrook Bank currently paying a market-leading 3.01 percent on easy access, while higher rates available from fixed-rate bonds.
Virgin Money pays a fixed rate of 3.95 percent for one year and 4.17 percent a year for two years, while Paragon Bank’s five-year fixed-rate Isa pays 4.15 percent a year.
If unsure what’s right for you, consider taking independent financial advice.