Potential benefits of investing

Most people put their money to one side without thinking about all their options. The only thing that may be considered is where they can receive the best rate on their savings. Whilst this is important, it isn't the only factor to consider.

Why choose a Stocks & Shares ISA
Effect of inflation

10 reasons to choose a Stocks & Shares ISA through Nationwide.

On your side: We’ve been designing products and services to meet our customers needs since 1846, and if you are looking to take a step beyond savings accounts, Nationwide can give you the support and expertise that can help to allow you to invest with confidence.
Using your whole ISA allowance: No-one wants to pay tax when they don’t need to, so by using your Stocks & Shares ISA allowance each year you could reduce the amount of tax you pay.
Making it simpler to invest: With over 2,000 investment funds available on the market, we understand the world of investments can sometimes seem daunting. That’s why we’ve done some of the hard work for you by selecting a shortlist offering access to a range of funds from leading UK investment fund managers. All the funds available through Nationwide are provided by Legal & General.
Professional advice if you need it: Our Senior Financial Consultants offer professional advice by conducting a thorough review of your finances, understanding your aspirations and explaining your options in a clear and simple manner. Only when you are happy that you understand the risks and benefits involved will they make a recommendation.
Online access to your investments: When you buy a Stocks & Shares ISA through Nationwide, you are able to view and manage it securely online from the comfort of your own home. You can get an up to date valuation, top up your Stocks & Shares ISA, switch between funds, and even add new funds. It couldn’t be more straightforward.
Pay no unnecessary income tax on your interest: When you invest through an ISA you don’t have to pay any additional income tax on any interest you get from your investments.
Financial Services Compensation Scheme: Investments are treated separately from savings under the Compensation Scheme meaning you have further protection on your investments up to £50,000 per person per company should you need it.
Protect your profits from capital gains tax: When your investments are held in ISAs, you don’t have to pay capital gains tax on any growth of your capital. This may seem like a minimal benefit if your capital gains are well within your individual capital gains tax allowance, but it’s worth remembering that stocks and shares investments are for the longer term. So if your funds perform particularly well for several years, holding them in an ISA will mean you have access to your money without having to worry about managing a potential tax burden.
Save time on your tax return: You don’t have to declare any investments held in ISAs on your tax return. This may not seem like much, but if you have to file an annual tax return, you’ll know that any way of simplifying your administration can be very helpful.
An extra bonus in retirement: If you expect to have an above-average income in retirement, you could see another benefit of ISAs. Once your taxable income is above £24,000, you will lose £1 of additional age-related allowance for every £2 you earn until the basic allowance is reached, which works out as an effective tax rate of 30%. However the benefit of an ISA is that its income is not included in these calculations, so if you are receiving an income from an ISA, you could potentially avoid paying further tax.

Effect of inflation

Most people don't realise is the effect that inflation has on traditional savings over time…it can effectively negate any interest you could earn.

Investing has the potential to outperform savings over the long-term as well as help your money keep pace with inflation.

With inflation running at 3.6%*, now might be the time to explore investments, and the potential for growth they offer.

The following examples show you how rising prices have affected the money in your pocket over the years by using inflation data from the Office for National Statistics:

£10,000 in January 1990 = £19,164 today

Your £10,000 would need to have grown by an average of 3.1% per annum, to £19,164, just to have kept pace with inflation.
If you achieved a lower rate of growth, the real value of your money would have fallen.

£10,000 in January 2000 = £13,745 today

Your £10,000 would need to have grown by an average of 2.9% per annum, to £13,745, just to have kept pace with inflation.
If you achieved a lower rate of growth, the real value of your money would have fallen.

£10,000 in January 2005 = £12,123 today

Your £10,000 would need to have grown by an average of 3.3% per annum, to £12,123, just to have kept pace with inflation.
If you achieved a lower rate of growth, the real value of your money would have fallen.

£10,000 in January 2009 = £10,899 today

Your £10,000 would need to have grown by an average of 4.4% per annum, to £10,899, just to have kept pace with inflation.
If you achieved a lower rate of growth, the real value of your money would have fallen.

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*Source of data: Office of National Statistics January 2012

How to help offset the effects of inflation

The effect of inflation means that people are faced with watching the true value of their savings being eroded unless the interest rate (after tax) is higher than the current inflation rate.

To help guard against this, if you are prepared to consider investing as well as saving you could have higher levels of growth. The longer you can commit your savings for, the greater the potential growth could be.

Graph illustrating the following three paragraphs

Instant Access Savings

Provides highest level of flexibility, so you can deposit or withdraw your money whenever you need to.

Limited Access Savings

If you don't need immediate access to your savings, you could benefit from a higher rate of interest.

Long Term Investments

Providing you're comfortable with both investing for five years or more and the increased risk, investments offer greater potential returns than deposit savings.

* Source: CPI from the Bank of England Inflation Report December 2011

More about the range of investments available