How to Brexit-proof your ISA savings

Deal or no deal, Brexit will soon be upon us, and the timing couldn’t be worse for diligent savers. The UK will officially leave the EU on 29 March 2019 – right in the middle of ISA season, and just a few days before the end of the tax year.

So how can you prepare your ISA savings so that you don’t suffer the full weight of currency depreciation and market volatility?

Use more than one ISA

Most UK savers are not limited to just one ISA per year. ISA savers can have as many Cash ISA and Stocks and Shares ISA accounts as they like – just as long as your total annual deposits across all of these accounts don’t exceed £20,000.

The main benefit of having more than one Cash ISA is that you can afford to chase the higher returns offered by fixed-term savings accounts, while also keeping an emergency stash of money in a lower-paying instant access account. By keeping Cash ISA accounts alongside a diversified Stocks and Shares ISA portfolio, you can also hedge against any Brexit-related stock market volatility.

An Innovative Finance ISA (IFISA) can also help to protect your savings from stock market volatility by offering a fixed rate of interest over a set period of time. By investing into British businesses, properties and personal loans, IFISA holders are able to shield their money from the immediate effects of stock market volatility. However, only one IFISA account can be opened per person, per year, and returns are not guaranteed.

Finally, a Lifetime ISA will help goal-oriented savers to put away money for a first home or for retirement.

By spreading your ISA allowance across several different accounts, you can protect your money from any sector-specific volatility, while still making tax-free returns.

Diversify your stock and shares portfolio

If you hold a Stocks and Shares ISA, this may be a good time to review your portfolio. Traditionally, UK equities have been seen as a ‘safe haven’ of sorts for UK-based investors, but this could change after Brexit. The performance of UK equities is closely tied to the performance of the UK’s overall economy, so any negative economic impact from Brexit will be reflected in the FTSE All-Share.

Rather than keeping the majority of your portfolio in UK equities, consider diversifying into global equities from other developed countries such as the US, Germany and France. Fixed income funds may also offer some reprieve from any potential economic volatility.

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Choose a fixed rate account

Fixed-rate accounts tend to offer better returns than instant-access savings accounts, as they require you to tie up your money for a set period of one to five years. For savers, the risk is that competing rates may rise far above the fixed rates on offer before the end of the term time. But with Brexit looming, there is a good chance that interest rates won’t rise significantly within the next few years.

By choosing a fixed-rate savings account, you can guarantee your interest rate during any Brexit-related economic uncertainty. And with a bit of luck, by the time your fixed rate deal has expired, savings rates will be on the rise again!

Keep less than £85,000 in cash

In a worst-case scenario, Brexit could spark an economic recession which could place UK-based businesses at risk. For stocks and shares investors, this could result in a loss of capital. For bank savers, it could lead to difficulties in accessing capital.

While this is very much an extreme situation, some savers may feel more comfortable keeping any savings of £85,000 or less in an FSCS-protected bank account. FSCS approval guarantees that your deposits won’t be lost, even if your bank goes into liquidation. While you won’t receive any compensation for lost returns, you will at least have peace of mind that your capital will be safe.

Don’t make any big financial decisions

The truth is, no one really knows what will happen after the UK leaves the EU. The economy may crash, or the country could thrive. There could be short-term volatility in the stock market, or a rush of new investment as the UK establishes new trade deals.

With so much uncertainty in the air, it is best to hold off on making any big financial decisions until after Brexit has taken place, if possible. Any financial decision that you make will be – to some extent – impacted by wider economic factors that are beyond your control. The wrong decision could become extremely costly in the event of an economic downturn.

Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.