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3 monthly ISA income plans that beat inflation

When saving for the future, it is important to bear in mind the effect of inflation. Because inflation causes the cost of food, housing and other essentials to increase over time, the real world value of your savings can decline if you don’t take steps to protect your money against inflation.

Unfortunately for savers, interest rates have fallen significantly over the last year, meaning interest alone is unlikely to be enough to protect your savings from the effects of inflation.

A year ago, we were looking at savings rates of around 2.10% for a 1 year fixed rate bond, 2.35% for a 2 year fixed rate bond and 2.70% for a 3 year fixed rate bond. Today, the equivalent rates are 1.35%, 1.53% and 1.61% respectively. This is equal to a 35-40% decrease.

This is why many savvy savers are now turning to investment ISAs as a way to maintain and grow the spending power of their savings.

Why invest in an ISA income plan?

Investment ISAs put your money into stocks and shares, giving greater potential for growth, while protecting your returns from tax, due to the tax-free nature of ISAs. An ISA income plan provides a regular month income from your investment, ideal for those looking to boost their retirement income or otherwise generate additional income from their savings.

For the 2017/18 tax year, you can invest up to £20,000 into an ISA. The following are 3 popular ISA income plans that beat inflation and provide a tax-free monthly income.

Investec FTSE 100 Enhanced Income Plan

This plan runs for five years and offers a fixed monthly income of 0.36% (equivalent to 4.56% per year). The minimum investment is £3,000 and you can put up to £20,000 in as an ISA investment or up to £1,000,000 as a non-ISA investment.

This is a capital at risk plan, which means the return of your investment is dependent on the performance of the FTSE 100 index. However, the rate offered is significantly above current inflation and interest rates, so this plan may be worth considering if you are willing to risk your capital.

Focus FTSE Monthly Income Plan

This six year plan offers a fixed monthly income of 0.333% (equivalent to 4.00% per year). The minimum investment is £5,000 and the maximum is £20,000 for ISAs, with no maximum for non-ISA investments.

Your capital will be returned at the end of the plan as long as the FTSE 100 Index has not fallen by more than 40% when the plan matures, relative to the opening index level when the plan began. Again, this plan offers returns above inflation and current long term savings rates, if you are willing to risk your capital.

Meteor FTSE Monthly Contingent Income Plan

This plan works a little differently, with the potential to pay out 0.584% every month (equivalent to 7.008% annually), but only if the FTSE 100 Index is at or above 80% of its opening level (when the plan begins) on the measurement date each month. If the FTSE 100 Index is below this 80% threshold on the measuring date in any given month, you will receive no income that month.

The plan can run for up to 10 years, but has the potential to mature early every quarter from year 2 onwards. For early maturity to happen, the FTSE 100 Index must be at least 5% above the opening level on the quarterly measurement date.

If the plan does not mature early, your capital will be repaid as long as the FTSE 100 Index has not fallen by more than 40% when the plan ends, relative to the opening level. The minimum investment is £5,000 and the maximum is £20,000 for ISA investments with no maximum for non-ISA investments.

Compare monthly ISA income plans that beat inflation

Take a look at our range of investment ISAs for more ideas on how to invest your savings to help you beat inflation so you can maintain and grow the real world value of your savings.

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