
ISA stands for Individual Savings Account.
Basically they're the government's way of encouraging you to save by giving you a tax incentive. Unlike bank or building society deposit accounts, unit trusts or similar investments, you don't have to tell the taxman about your ISA because there's no additional income tax or capital gains tax to pay.
You can use your ISA to invest in stocks and shares or simply as a risk free savings account where your interest comes tax free, or a bit of both.
ISAs give both novices and experts an easy way to invest in the stock market.
Not if you like paying unnecessary tax on your savings.
But if you're a taxpayer thinking about savings and investments, the answer's yes.
At the very least a cash ISA will give you a better return than you'll get from your bank or building society savings account, because your interest comes tax free.
If you're thinking of investing money in stocks and shares through an ISA, we recommend you only invest money you can afford to tuck away for at least 5 years, to increase your chances of a good return. But remember, most stock market investments are considered medium to high risk and there is no guarantee you'll get back the full amount you invest. If you couldn't stand the thought that your savings might go down as well as up in value, the stock market probably isn't right for you.
Do I need a big lump sum to invest?
Nope. With a Virgin ISA you can invest from as little as £1.
In fact, saving monthly in our Bonds and Gilts ISA would have given you a better return than saving up a lump sum in a high street savings account to invest in your ISA later.
If you'd saved £100 a month in our bond and gilt fund over the last 5 years (offering higher returns than a deposit account, without a big increase in risk) it would now be worth £6,497.38.
Remember, past performance is not a guide to the future and a deposit account is a risk-free investment. Your capital is at risk in stock market type investments, and you should only invest for the long term.
Source: Standard and Poor's Micropal - www.micropal.com. Virgin Income Trust (bonds and gilts), regular savings of £100 on the first of each month from 1.6.01 to 1.6.06, buying to selling unit prices, basic rate tax with income reinvested. High street savings comparison is based on a basic rate taxpayer saving £100 a month from 1.6.01 to 1.6.06. 'High street savings account' is the UK Savings rate 2500+, based on the average rate paid by the top 20 building societies. The total value of the average high street savings account would be £6,208.49.
So how much should I invest and when?
If you've got a lump sum to invest, the golden rule is to invest it as soon as you can. If you haven't, you can save monthly.
Unless you've got a particular target in mind, simply save what you're comfortable with.
One of the biggest ironies of stock market investment is that when share prices are at their highest after many years of growth, this often attracts investors in greater numbers, even though you actually get fewer shares for your money. Yet when share prices have dropped, many investors avoid the stock market even though lower share prices would mean they'd get more for their money. At Virgin Money, we always stress that:
- It's not when you invest that's important, but how long you invest for.
- Waiting around until the market's right can mean waiting forever.
- If you do happen to invest when share prices are low, think of it as a bonus.
But remember, as share prices can go up and down, it's a good idea only to invest money you can afford to see dip in value.
How long do I need to invest for?
Stocks and shares should be seen as long term investments, so we suggest keeping your money tucked away for at least five years, preferably longer, to increase your chances of a good return.
You can, however, get at your money any time you need to.
On the contrary. You can stop, start, or change your payments any time you like. And you can get at your money whenever you need to. All without penalty.
What's the performance on your Growth Fund like so far?
Customers growing their savings in our index tracking fund since it launched in March 1995 have received an average return of 8.3% a year.
An Investment of £3000 in March 1995 would have increased in value to £7,354 on 1.6.06 -a total return of more than 145.12%.
Source: Standard Poors Micropal - www.micropal.com, 6.3.95 - 1.6.06, buying to selling unit prices, basic rate tax with income reinvested. If you had invested £3000 on the 1.6.01 it would be worth £3,455 after charges on the 1.6.06.
Due to the well publicised stock market doldrums it's not done as well over the last five years as in most previous five year periods, but it did return to growth in 2003.
Virgin UK Index Tracking Trust performance over the last 5 years | ||||
01/06/2001 to 03/06/2002 | 03/06/2002 to 02/06/2003 | 02/06/2003 to 01/06/2004 | 01/06/2004 to 01/06/2005 | 01/06/2005 to 01/06/2006 |
-11% | -18.3% | 14.9% | 15.3% | 19.7% |
Source: Standard Poors Micropal - www.micropal.com, 1.6.01 - 1.6.06, offer to bid unit prices, basic rate tax with income reinvested
But, while these blips in performance do happen it's important to keep them in perspective by also looking at performance over the longer term. Remember, with stock market investments the value of your savings and the income you get from them can go down as well as up and you may not get back the full amount you invest. It's also worth remembering that past performance of a fund isn't a guide to how well it might do in the future.
What's the performance on your Income Fund like so far?
Customers growing their savings in our bond and gilt fund since it launched in October 1995 have enjoyed an average return of over 6.0% a year, turning a £5,000 investment into £9,110.
Source: Standard and Poor's Micropal - www.micropal.com, 2.10.95 - 1.6.06, buying to selling unit prices, basic rate tax with income reinvested. Over the last five years to 1.6.06 the average annual return has been 4.0% turning a £5,000 investment into £6,119.
This table shows the annual return in the last five years | ||||
01/06/2001 to 03/06/2002 | 03/06/2002 to 02/06/2003 | 02/06/2003 to 01/06/2004 | 01/06/2004 to 01/06/2005 | 01/06/2005 to 01/06/2006 |
4.8% | -11.1% | -4.3% | 9% | 0.8% |
Source: Standard and Poors Micropal - www.micropal.com, year on year 1.6.01 - 1.6.06, offer to bid unit prices, basic rate tax with income reinvested.
Remember, with bonds and gilts the value of your fund and the interest that gets reinvested can go down as well as up on a daily basis, with no guaratees you'll get back the full amount you invest. To maximise your chances of a good return you should be looking to invest for at least five years.
It's also worth remembering that the past performance of an investment isn't always a guide to how well it may do in the future.
Is there a Simplified Prospectus for the Virgin ISA?
To see the Simplifed Prospectus for the investment funds in a Virgin ISA click on the link below. (NB. There is no Simplified Prospectus for the cash part of an ISA. )
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What sort of returns can I expect?
Growth investors
Your returns will depend upon your choice of investments.
Income investors
If you had invested a single payment of £5,000 on 6 June 2006, you could expect to receive income of £116 every six months. This is based on the current yield of 4.7% after charges.
Cash investors
The interest rate on our cash ISA is currently 4%, tax free*.
*The rate of interest is variable and correct as at 1 June 2006. As this interest is paid annually, the rate above is the annual equivalent rate. Withdrawals can be made at any time. Minimum investment £1.
The cash in your Virgin ISA goes into a personal deposit account with The Royal Bank of Scotland plc.
For investments in our index tracking fund or our bond and gilt fund there's a single annual management charge of 1% of the value of your savings, and that's it. There are no other charges, and no charges at all on our Cash ISA.
How do I check how my savings are doing?
We write to you twice a year to let you know how your savings are doing, and you can phone or check out our website any time for the latest valuation.
Is an ISA the best way to invest in the stock market?
It's not really a suitable place for your 'rainy day money' - cash you might need to take out again soon. Share prices do go up and down on a daily basis, and there's no guarantee you'll get back the full amount you invest. Also, occasional longer periods of stock market decline (known as 'bear markets') can even mean you have to wait a few years to see a decent return on your money.
But if you can afford to tuck money away for five years or more, that's when the stock market usually comes into its own. Over that sort of timespan few investments would normally give you a better return. The graph below shows how, despite the ups and downs, the overall trend has always been one of steady upward growth, making it the No.1 place for professional investors.
If you're not comfortable investing in stock market shares then our bond and gilt ISA might be a better bet. It should give you a higher return than a building society savings account, without significantly increasing your risk.
Remember, a deposit account is a risk-free investment. Your capital is at risk in stock market type investments, and you should only invest for the long term.
Source: Standard & Poor's Micropal, www.micropal.com, All-Share Index, basic rate tax payer, income reinvested, 682% growth from 1.2.86 to 02.01.06.
What about the risks of investing in shares?
Investing in stock market shares is not without its risks. They can rise spectacularly in value over many years, go into periods of decline, or fall suddenly in value, with no guarantee you'll get back the full amount you invest. The key thing to remember is, the longer you stay invested in the stock market the better you tend to do.
If you only invest in a handful of shares over the short term you'll certainly increase your risk. But by investing over many years and spreading your savings over a wide range of shares, you lessen that risk and actually increase your chances of getting a good return.
The risks of not investing in the stock market are rarely spelled out, but are just as real. For instance, you probably think your bank or building society savings are safe, but did you know their real value can actually fall over time. It's to do with inflation. If your deposit account only earns 2% in interest but the cost of living goes up 2.5%, your savings aren't growing in real terms, they're shrinking. Now that is scary. Remember though, investing in an ISA is different to a deposit account, where your money is not at risk.
If the stock market falls do I lose my money?
History shows that long-term investors shouldn't be too worried when the stock market falls. The people who lose out are those who panic and cash in their investment, instead of waiting for the market to rise again. For example, in 1987 the market actually finished higher than it started, despite falling 32% in the October 87 'crash'.
However, if the market goes into a longer fall (known as a 'bear market') it can sometimes be a few years before you start to see a decent return on your money. As ever, time is the key, and you should only consider investing money you can afford to tuck away for at least five years.
How do trackers compare to active funds when the going gets tough?
It's a myth that active fund managers come into their own when the stock market goes through a rocky patch. No fund manager has a hotline to stocks which don't go down when markets fall. Most get the timing wrong, locking in your losses by selling investments that have already fallen, or buying after the market's begun climbing again. With a tracker you never have to worry on either score.
With an index tracker you know it will go down when the market does, and come up again when the market does. But it's the historic long-term upward growth of the market you're looking to tap into, rather than gambling on making a quick profit out of short-term ups and downs.
Are all index tracking ISAs the same?
No, some have a bias toward certain sectors of the market. They may only invest in the top 100 companies, or in technology stocks or small companies. These investments can pay off, but if an individual sector performs badly it can have a more serious impact on your returns than if you'd invested across the market as a whole. The fact is, investments which track the FT-SE All-Share Index consistenly outperform the vast majority of UK unit trusts.
Do tracker funds with the lowest charges give the best returns?
Not necessarily. How closely a fund tracks its chosen stock market index (known as 'tracking error') can also have an impact on your returns. Some trackers don't invest in all the shares on an index. Instead they select a 'sample' of shares to invest in, which is really active management by the back door, and will affect your returns. A 'fully replicated' tracker which buys shares in every company on the index will track the index closer.
Also, always check charges carefully. Some companies advertise what appears to be the lowest charging tracker, but there are often strings attached, or other charges that can bump up the cost.
Where can I get details of the latest yield?
What's the interest rate on your Cash ISA?
Our current cash interest rate is 4%, tax free.
Plus we guarantee you an interest rate that's not lower than 1% below base rate* until 5 April 2007. And after that we won't let our rate fall below this level without giving you a minimum of 3 months' written notice. If we don't have to fall below it, we won't. That's a promise.
If you like our interest rate promise and want to invest more than £3,000 in cash, you can also open a Virgin Deposit Account and get the same interest rate guarantee.
The cash in your Virgin ISA goes into a personal deposit account with The Royal Bank of Scotland plc.
* The UK clearing bank base rate. We'll make sure any interest rate rises necessary to keep to our guarantee are made within one month of a move in base rate.
When do I get the interest on my Cash ISA?
Your money earns interest daily and we credit it to your ISA account once a year, on 5 April, or on the day you close your ISA.
We send you a six monthly statement every February and August, but you can also check the value of your ISA over the phone or internet any time.
You can get at your cash whenever you need it. We'll even set up a password so you can withdraw money over the phone or internet. We'll normally have a cheque in the post in a few days.
Can I transfer another ISA to Virgin?
Yes, whether it's an ISA from a previous tax year or one you're paying into this tax year, you can transfer it to Virgin.
If you're interested in transferring an ISA to us, simply call us on 08456 10 20 20 or email us
Can you help me decide what's right for me?
You can call and ask us questions any time. And if you need advice we'll put you in touch with an independent financial advice helpline.