Why millennials would be better off investing in ISAs than cryptocurrency

‘The Isa season is here, woo-hoo!’ said no millennial, ever.

Over the past decade, I’ve watched Isas fade into irrelevance for a generation of young adults who feel they have 99 problems, but tax inefficiency ain’t one.

The Isa (or Individual Savings Account) is a tax-free legal structure that has been around since 1999.

It allows you to save tax over the long run as you (hopefully) build up savings and/or investments that would otherwise get HMRC hot under the collar.

Except, paying too much tax on your sizable assets seems like a classic rich boomer problem, right? One that doesn’t trouble many millennials struggling to pay rent or keep the lights on.

It doesn’t help that Isas and their arcane rules don’t easily gel with the simplistic tips that often pass for ‘financial advice’ on social media.

For instance, the Individual Savings Account isn’t just a savings account. You can use it to invest, too. And it isn’t really an account either. It’s frequently described as a tax-free ‘vehicle’, which sets my teeth on edge.

It’s better to talk about the Isa family, with various members offering different things. You can entrust your Isa allowance to more than one member of the Isa family, but you’ll need to wrap your head around the best combo for you.

For instance, some Isas are only available for certain age groups or goals. And they often come with spiky terms and conditions that you don’t want to ignore or misunderstand.

Oh, and you only get one new allowance to put towards the Isa family (currently worth £20,000) per tax year. We’re coming up to Isa season because the new tax year starts on April 6. Please don’t ask me why.

No wonder many young people overlook the fussy old Isa family in favour of more exotic bets that took off during the pandemic, like cryptocurrency, individual share trading and digital artwork.

Why bother with boring small print and slow-burn returns when you can start trading online in minutes, with no strings attached? Why educate yourself about the investment universe when you can make a quick buck on Dogecoin and digital farts? Seriously, Google it.

Many young people are gambling on risky investments in the short term because they feel they have nothing to lose. They’re drawn to alternative finance in an economy that has ground them down and cut off traditional routes to prosperity, such as home ownership.

Against this backdrop, the Isa family – with its advantages rooted in steady saving and investing over the long term – seems to offer very little for the average millennial. But I think we should give Isas another look.

Firstly, the Lifetime Isa is available for anyone under 40 who is serious about saving up for property. The Government will give you a bonus worth 25% of whatever you save, up to a maximum of £4,000 a year.

That’s potentially a free grand a year towards your deposit. Be aware the house price limit is £450,000, which should be revised if prices keep going up, and you’d pay a nasty 25% penalty on any early withdrawals. Otherwise, it’s a doozy.

Secondly, a stocks and shares Isa is the perfect gateway to the complex but fascinating world of investing.

Most online platforms and so-called ‘robo-advisers’ now offer one, so you can choose the right investing technology for you, safe in the knowledge all your future returns and dividends will be tax-free.

And yes, you have every chance of incurring tax liabilities if you maintain a well-diversified, smartly judged portfolio over the long run.

Consider your stocks and shares Isa a magic shield against inflation, the ultimate wealth-killer.

Inflation not only makes everyday life more expensive, it eats away at your savings. That’s why keeping all your spare cash in a deposit account will lose you money in real terms.

But returns in the stock market have traditionally beaten cash and give you a good chance of outrunning inflation.

Of course, you should only invest money you can afford to lose, as that’s always a possibility here. But you can significantly reduce your risks by keeping your money invested for at least five years and not pulling out every time you see a gloomy headline.

Sure, finding solid investment opportunities will become much harder if we enter a recession and inflation cuts trendy ‘growth’ stocks like Tesla down to size, as it has done historically.

But investing has never been about quick wins and an easy, smooth route to prosperity. If anyone tells you otherwise, they’re telling porkies or trying to scam you.

Iona Bain is the founder of Young Money Blog and author of Own It!

If you want more tips and tricks on saving money, as well as chat about cash and alerts on deals and discounts, join our Facebook Group, Money Pot.

If you want more tips and tricks on saving money, as well as chat about cash and alerts on deals and discounts, join our Facebook Group, Money Pot.

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