With ISA season well and truly under way, this is an important time to consider how best to make use of this valuable tax break and remember, if you do not use your ISA allowance it is lost forever. With the need to review existing ISAs as well as making sure new investments bring with them the opportunity for high returns, we bring you our selection of the best income and growth Investment ISAs the market currently has to offer. For those looking for savings plans or who have capital protection as a top priority, see our Cash ISA season selections.
Our Selections
Below we have listed some of our most popular Investment ISA plans currently available, split between income and growth opportunities. With income needs continuing to play a critical role for many investors, the attraction of having tax free income, especially when this income would normally be subject to your highest marginal tax rate, is too good to miss. Whilst for investors looking for growth, we have a number of plans including those which take a defensive view on the stock market as well as investments with the opportunity to mature early or ‘kick out’ as early as year one. With the potential for headline returns of up to 9% income and 12.5% growth, there is a wide range of attractive opportunities.
Remember, Cash ISAs can now be transferred to Stocks & Shares ISAs which opens up another option for many savers who are having to face the impact of record low savings rates. Please note though that once if you transfer a Cash ISA to a Stocks & Shares ISA you cannot then move it back into a Cash ISA in the future.
INCOME ISAs
Up to 9% yield, quarterly payments
Income remains a top priority for investors and with opportunities for high income from our capital hard to come by, the recently launched FTSE 4 Quarterly Income Plan has already created significant interest. The plan offers the potential for up to 9% annual income dependent on the performance of four FTSE 100 companies. An income payment of 2.25% is made each quarter provided the value of all four shares is at or above 60% of their value at the start of the investment. This means that each share can fall up to 40% and investors still receive 9% income however, if one or more shares are below this level, no income payment will be made for that quarter.
The return of your initial investment also depends on the performance of the same four shares. On the final day of your investment should the value of the lowest performing share be less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
6% fixed income each year, monthly payments
The Enhanced Income Plan from Investec was our most popular income investment during last year’s ISA season and continues to remain a best seller with both income investors as well as savers looking for investment alternatives. The main appeal of the plan is that it offers a fixed income which is paid to you each month, regardless of the performance of the FTSE 100 Index. The annual income is currently 6% (paid as 0.5% each month) which is high when compared to typical yields on investment funds.
Capital is at risk if the FTSE drops by more than 50% during the plan and fails to recover by the end of the term, in which case your initial capital will be reduced by 1% for each 1% fall.
Experienced investors – up to 7.2% income
Our experienced investor section contains a number of investment opportunities for our existing investors and those who have experience of putting their capital at risk. One of our most popular is the Enhanced Income Builder from Gilliat which offers up to 7.2% each year with income accruing for each Friday during the term that the FTSE 100 closes above 3,900 points – if it closes below this level, no income will be added for that week. All accrued income is then paid out each quarter.
Your capital is at risk if the value of the FTSE on the last day of the investment is below the same 3,900 point barrier, in which case your initial capital will be reduced by the equivalent drop in the Index. Due to gap between the recent levels of the FTSE and floor of 3,900 points, this plan has proved very popular with income seekers. Please note that past performance is not a guide to future performance.
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GROWTH ISAs
For those looking for growth instead of income, there are a wider range of investment opportunities available.
Kick out investments remain popular
Kick out investments combine the potential for a defined return with the opportunity to mature early, from as early as year one onwards. The highest rate for an investment based on the FTSE 100 Index is on offer from Investec’s Enhanced Kick Out Plan which will return 9.5% per year (not compounded) provide the value of the FTSE 100 Index at the end of each year is higher than its value at the start of the plan – so although the FTSE does have to rise, this only needs to be by a single point. Your initial capital is at risk if the FTSE falls by more than 50% during the investment term and also finishes below its starting value, in which case it will be reduced by 1% for each 1% fall – arguably this is a fair trade off for the potential to beat the market if the Index only rises a little.
Compare Kick Out Investment ISAs >>
Defensive plans
With the FTSE 100 remaining at what are historically high levels, it is understandable that investors may be thinking twice before investing. But for those who are not convinced the FTSE will rise but who would still like the potential for investment returns, there are still a number of options.
Morgan Stanley’s FTSE Defensive Kick Out Plan will mature early and provide an annual return of 8% (not compounded) provided the FTSE 100 Index at the end of each year (from year 3 onwards) is no more than 5% below its value at the start of the plan. If the value is below this level, the investment continues to the next year. For those prepared to receive a lower headline in return for a greater fall in the Index, Investec’s FTSE 100 Defensive Kick-out Plan will return 7% for each year invested (not compounded) provided the Index at the end of each year (from year 2 onwards) is at least 90% of its value at the start of the plan. So even if the FTSE only rises by a small amount or even falls slightly, you can still achieve high returns from your capital.
Both investments contain conditional capital protection which means that your initial investment is returned in full unless the Index falls by more than 50% during the plan, and is also below the required level to kick out at the end of the term. In this case your initial capital will be reduced by the same amount as the fall in the Index so you could lose some or all of your capital.
Compare defensive growth Investment ISAs >>
Other growth plans
Finally, for those looking to combine the appeal of early maturity with longer term growth potential, the FTSE Kick Out Supertracker Plan from Start Point (BNP Paribas) offers investors two opportunities to achieve high returns from their capital. The first opportunity occurs after three years when provided the level of the FTSE is higher than its value at the start of the plan, you will receive a fixed return of 21%. If the Index has risen by more than 21% you will receive a return equal to this higher amount. In both cases your initial investment is also paid back.
If the FTSE is lower, the plan continues until the end of the term at which point investors receive a return equivalent to three times any growth in the FTSE since the start of the plan (for example, if the FTSE has risen by 20%, you will receive a 60% return), capped at a maximum return of 75% of your initial investment. If the FTSE finishes below its starting value your initial investment is still returned to you unless the FTSE has fallen by more than 40%, in which case your initial capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
Click here to look at more growth Investment ISA options >>
Growth plans for experienced investors
For those looking for the potential for double digit growth returns there are a range of plans which combine more than one Index in the underlying investment in order to create higher growth opportunities.
One of our most popular is the Dual Index Enhanced Kick Out Plan from Investec where your returns are dependent on the performance of the FTSE 100 Index and the S&P 500 Index. If both Indices at the end of each year (from year 1 onwards) are higher than their values at the start of the plan, the plan will return 12.5% for each year invested (not compounded). Capital is returned provided both Indices finish above 50% of their starting values but if one or more Index finishes below this level, your initial investment is reduced by the same percentage as the worse performing Index, so your capital is at risk.
Visit our experienced investor section >>
Important reminder – why do an ISA?
One of the main reasons for using an ISA concerns the tax treatment since no tax is payable on the income you receive or on any capital gains that you make and there is no need to declare any ISA income or capital gains on your tax return. They therefore provide tax efficient income or growth on your deposit or investment, the benefit of which can be compounded over time.
Please note that the tax efficiency of ISAs is based on current tax law which is subject to change in the future.
For help and guidance at this important time of year, see our Top 10 Tips for ISA season. Please also note that with all of these options, our experienced Investment Customer Services team is always on hand to answer any questions you may have.
Compare income Investment ISAs >>
Compare growth Investment ISAs >>
Visit our experienced investor section >>
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment depends on your individual circumstances and may change and may be subject to change in the future.
The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors.
Structured investment plans are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.
