Gold vs ISAs

What Is An ISA?

Individual Savings Accounts (ISAs) provide a tax-free savings and investment vehicle allowing UK individuals to allocate a limited amount of money every year.. Any returns made on this money are protected from taxation, including Capital Gains, Income and Dividends.

It’s essential to be aware of varying investment risks as an investor so you know what to look out for and how to create a diverse portfolio that takes the appropriate amount of risk.

ISAs are popular as they can be set up relatively easily and offer the average investor a way to invest tax efficiently. These accounts will be opened through a bank or building society.

However, other financial institutions could be on hand to provide an alternative. For example, you could work with a private fund manager who makes investment decisions for you.

You can get started with gold investments in a number of ways, not all of them involving the purchase of physical gold. These include:

• Physical Gold: This involves actually purchasing the gold, usually in the form of bars or coins, and storing it.
• ETFs: Exchange traded funds allow you to invest in the gold market, without actually owning any gold yourself.
• Gold mining stocks: You can invest in the companies who mine the precious metals. Though not directly tied to the gold market, usually when the price of gold goes up, so does the value of your shares.

When you consider the performance of both of these over time, gold has consistently outperformed ISA’s.

If you consider a £20,000 investment made in the year 2000, at the end of the year 2022 that would have been worth:

• If you had purchased £10,000 of gold in Dec 2000, it would have been worth £78,919 at the end of 2022.
• If you had put £10,000 into a cash ISA at the same time, it would have been worth £17,216 at the end of 2022, assuming an interest rate of approximately 2.5% on average over the 22 years.

ISA returns are related to the markets and official interest rates, which have been really low over recent years, affecting ROI. There is also the fact that Cash ISAs aren’t a good hedge against inflation as they always pay a lower rate than inflation (an effective decrease in the value of money) Gold is well-known for outperforming inflation over the medium to long term.

Verdict: Gold

Gold has increased in value at a much larger rate throughout the 21st century, and has been hands down a better investment during that time.

ISAs can lack a huge amount of the flexibility of gold. You will often find with an ISA that there are limits on how much you can invest and withdraw over a specific period. Not only that, but there are usually some severe penalties on the money you hold should you decide to liquidate your ISA before your agreed term. This is particularly relevant on fixed return ISAs.

Gold, on the other hand, carries none of these limitations. There are no caps on how much or how little physical gold you can buy, and there is always a willing market with no penalties should the time come to sell your gold investments.

Verdict: Gold

There is no doubt that there are less restrictions and penalties if you choose to invest in gold over ISAs.

ISAs and gold both carry with them great tax benefits for your money. Whether investing in an ISA or gold coins you’ll find ways that both can be free of VAT, Capital Gains Tax and income tax. It is however worth bearing in mind that some other gold purchases, such as gold bars, could be liable for Capital Gains Tax, so it’s always best to do your research or speak to an advisor in that regard.

It’s helpful to know that an ISA allowance is put in place to limit the amount that can be deposited. In the UK, this is set at £20,000 for ISAs.

Although the tax benefits are the same, it’s important to remember that there are no limits on the tax benefits for gold, and you have the ability to make significantly higher investments.

Verdict: Gold

ISAs are designed to be a way to store value for a small amount of money, and the tax benefits for this reason are fine, although gold carries with it the same benefits without the restrictions.

Cash ISAs are the less volatile of the two, though gold has proven itself to be extremely low volatility over time and has a far higher upside.

• Storage cost for gold: Depending on how much you invest, you may want to have your gold stored in a secure vault. This will incur you an additional charge of around 1% per year, though our guide explains the details of gold delivery and storage.
• Management fees for Equity ISAs: If opting to invest into equities, many funds will command annual charges of between 0.1% and 2%, depending on the type and complexity of stock funds.
• Penalties on your ISA: The fact is that for many of the better ISAs (with higher rates), you’ll be tied into terms which will penalise early withdrawal. If you feel you will need access to your money at any time, then be sure to research penalty fees if you were to choose an ISA.
• Transaction fees on gold: When you buy gold, you’ll pay a spread above the gold spot price. The size of this spread depends on the quantity and type of gold coins or bars you purchase. This covers costs such as refining, production and transport. A good gold dealer can advise how to limit this margin to 6-8% through optimal selection of physical gold products. However, the gold price will need to appreciate by this amount before you’re in profit

Verdict: ISA

There will be more additional fees with physical gold than with an ISA, mainly due to the fact you’ll have an actual product.

There are benefits to both ISAs and gold; however, history has shown us that gold has the greater upside, and can cater for a range of budgets, not just large investors.

You can buy directly from ourselves as one of the UK’s leading gold dealers, and we have made a number of tools available to you to help you take the next steps.

If you’re looking to buy gold coins or bars, we are a trusted and renowned broker :

• We are accredited by the British Numismatic Trade Association (BNTA).
• We have over 1000 5 star reviews.
• We offer buy back guarantees for your investments, guaranteeing you great rates and security.
• We are available to talk to you about your requirements: you can call us directly on 020 7060 9992 or simply book in a call for a time that’s convenient.