BBC money expert Iona Bain has urged savers under 65 to consider investing as major changes to ISA allowances come into force next April. The current £20,000 annual cash ISA limit will be reduced to £12,000, prompting a shift towards stocks and shares ISAs.
Understanding the Basics of Saving and Investing
Appearing on BBC's Morning Live on May 5, Bain broke down the fundamentals. 'If you want to grow your money, there are two main ways: you can either save it or invest it,' she said. Savings accounts offer a flat interest rate and are considered safer, but there is a risk if the rate fails to beat inflation. For instance, £100 kept in a piggy bank for 10 years would now only buy what £139 could a decade ago, according to the Bank of England.
Investing, on the other hand, involves putting money into assets like shares, property, or bonds, with variable returns that can outpace inflation. 'You can choose individual assets or use funds, which pool money with other investors to spread risk,' Bain explained. She noted that many people already invest unknowingly through workplace pensions.
Key Questions Before You Start Investing
Bain outlined three questions to determine readiness:
- Do I have expensive debts to pay off? High-interest debts should be cleared first, as their interest rates typically exceed potential investment returns.
- Do I have an emergency fund covering three months of expenses? Accessible cash is crucial for unexpected costs; invested money is harder to access quickly.
- Can I commit the money for at least five years? The stock market fluctuates, but a longer timeframe increases the chance of positive returns.
Starting Small and Reducing Risk
Investing does not require large sums. 'Starting with £50 a month can build into a tidy sum over five or ten years,' Bain said. While there is a risk of losing all money, diversification—spreading investments across companies, sectors, and regions—reduces that risk.
For those already invested, Bain advised against panic selling during volatile times. 'Keep calm and carry on,' she recommended, emphasising that reacting to scary headlines can undermine long-term growth.
