Low Risk ISAs

ISAs (Individual Savings Accounts) are a type of tax break for UK-based savers and investors that allows you to put away up to £10,200 every tax year without paying tax on the interest or capital gains. There are currently several types of ISA available from firms such as Legal & General*, and some are riskier than others. Here, we shall discuss a few of the less risky options available to the consumer.

Cash ISAs come in two different forms – fixed-rate, and variable rate. They are essentially similar to standard savings accounts, except that the net interest rate tends to be a bit higher due to the fact that you do not have to pay tax on the interest. The interest rate of a variable rate Cash ISA will fluctuate over time based on changes to the Bank of England base rate. A fixed interest Cash ISA will give you a guaranteed return which tends to be lower than that which is available with a variable rate Cash ISA, but if the base rate were to drop below a certain level, then you could end up making more money from this type of account.

Tracker, or Index-Tracking ISAs provide returns that are in line with stock market movements across an entire index or sector, such as technology or the FTSE 100. For example, if you were to invest in a Tracker ISA that followed the FTSE 100, you would own part of a fund that included an equal amount of shares in every single company listed on that index. Therefore, the value of the fund, and your investment, would rise and fall in accordance with the index as a whole. It is worth pointing out that if you were to invest in a tracker fund that followed a foreign market, the value of your investment would be affected by exchange rate fluctuations as well as market fluctuations.

Income ISAs are invested in funds consisting of fixed interest securities such as corporate bonds and government bonds. Bonds are effectively loans to companies or governments with a fixed rate of interest and a set length. Due to this guarantee of income, bonds are considered to be less risky than stocks and shares, and usually a bit less potentially profitable to boot. However, there is still a degree of risk attached, in that the firms in the fund could go bust and default on their debts, reducing the overall value of the fund.

Have a look at the Santander website for a range of savings accounts.