Nutmeg and Virgin Money have launched promotions that see their investment Isas come with flight rewards points to lure in investors ahead of the new tax year.
Nutmeg – the online investment management service – is offering Avios points, which can be used on Aer Lingus, British Airways and Iberia, while Virgin Money offers Flying Club points, which can be used for Virgin Atlantic trips.
Both are offering the opportunity to pick up hefty amounts of points in one go, but tempting as that may sound you should never base your investing decisions on perks. You need to factor in whether a service is right for you, fees and performance history to help make your decision.
Plus, there are catches to look out for – and it remember that stocks and shares Isas are investment products, so the value can go down, as well as up.
Flying Club: Virgin Money is luring in Isa investors with airmiles for its Virgin Atlantic brand
Both deals require investors to remain with them for a period of time and while Nutmeg is one of the leading companies in its field, with costs comparable to rivals, the Virgin Money Isa involves investing in a selection of tracker funds that are expensive compared to their peers
Furthermore, investments are for the long term – these are not accounts to open and close quickly, so if you pick the wrong one for you due to the short term opportunity to pick up points that could end up costing you extra money for years to come.
As This is Money editor Simon Lambert explains in his ‘here’s how to start investing in an Isa’ column, the past 18 years have seen two major stock market crashes and the financial crisis.
Yet, the average cash Isa has returned 0.89 per cent a year above inflation, while the total return from the UK stock market was 3.66 per cent a year above inflation, according to figures from Schroders.
Over the long term not investing in shares means you are passing up the best chance of inflation-beating returns.
Investing makes your money work harder and the longer you do it for, the less likely you are to lose out.
Below, we compare the Nutmeg and Virgin offers – but it is wise to read our how to choose the best (and cheapest) DIY investing Isa and do your own research before making any decisions.
THE NUTMEG AND VIRGIN ISA DEALS
The Nutmeg offer sees 1 Avios point for each £1 invested in either a Sipp, general investment account or Isa, up to a maximum of 80,000 points. It runs until 9 April 2018.
This means if you have already opened a stocks and shares Isa elsewhere, you can take advantage in the new tax year, which begins 6 April.
The minimum investment is £500. For an Isa, the maximum you can put in is £20,000 for this tax year.
It has 50,000 investors and £1billion assets under management. The offer doesn’t extend to those opening a Lifetime Isa.
The Avios offer is only for new customers and points are only for the initial deposit. So, if you put in £5,000, you’ll get 5,000 points – if you then add another £5,000 in at a later date, you won’t get another 5,000.
Nutmeg says investors will get their points within 45 days. Crucially, the account has to remain active for 18 months, or Nutmeg could sting you with penalties.
Those interested need to sign up with Nutmeg via a special landing page to earn the points.
Annual management fees run between 0.75 per cent and 0.45 per cent. The former gets you a fully-managed portfolio, while the latter gets you a fixed allocation portfolio constructed by its experts.
You must also pay the price of the underlying investments, which works out on average at 0.19 per cent and 0.17 per cent, for the services above, taking total costs to 0.94 per cent and 0.62 per cent, respectively.
Crunch the sums: Investing should be for the long-term – and you shouldn’t make a decision based on these sort of incentives
The Virgin Money offer runs until 31 May 2018. It offers 8,000 Virgin Miles via two ways of opening a stock and shares Isa.
You can either invest a lump sum of £5,000, or make a £150 monthly investment for at least six months to trigger the deal.
In both scenarios, you must leave the account open for a year or the miles may be siphoned back by the firm.
The Virgin Isa has five different risk profiles for investors. You choose between five tracker fund options that can contain shares invested in the UK and overseas and company and government bonds.
The annual ongoing charge is 1 per cent of the value of your investments, which is expensive compared to rival tracker funds – even if you add in the cost of a DIY investing platform too.
As a point of comparison, investment giant Vanguard’s platform charges a 0.15 per cent admin fee, with its Lifestrategy funds, that invest in bonds and shares around the world, available with 0.22 per cent ongoing charges, delivering a total cost of 0.37 per cent.
The Virgin miles are typically issued extremely quickly.
Those who hold the Isa are also able to use Virgin Money lounges in cities across the UK, which offer complimentary coffees and other perks.
‘8K MILES FOR £150 A MONTH IS GOOD RETURN’
Rob Burgess, founder of frequent flyer website Head for Points, which analyses new airmiles deals, said: ‘You shouldn’t make major investments purely on the basis of a sign-up incentive.
‘However, if you are looking to invest in a stocks and shares Isa, either before the 5 April deadline or immediately afterwards to use your 2018/19 allowance, these two deals are worth a look. Both offer a mix of funds so you can tailor your risk profile.
‘Purely looking at the sign-up bonus, the Virgin Flying Club miles are a better deal for anyone looking to invest a small amount – 8,000 miles for committing to monthly investment of just £150 is a good return.
‘If you are looking to invest your full £20,000 Isa allowance then the Nutmeg offer of 1 Avios point per £1 would be better for you.
‘Both Virgin and Nutmeg require you to keep your money in place for 12 months and 18 months respectively unless you want to pay an exit penalty, so it isn’t possible to put in your money, take the miles and then withdraw it immediately.
‘You need to be happy with the fact that there is some risk to your capital over the period you are locked in.
‘If you are okay with that, it is worth taking a look at both of these deals if you want to boost your frequent flyer miles account.
‘If you do not want to take any risk, there are easier ways to pick up a pile of free Avios or Virgin miles.
This includes taking out an American Express Preferred Rewards Gold charge card which offers 20,000 miles for signing up and is free for the first year.
‘Virgin Atlantic is also meant to be relaunching its credit cards shortly via Virgin Money.’
According to Rob, 8,000 Virgin Miles won’t get you very far because Virgin Atlantic is a long-haul only airline – so to make them worthwhile, they need to be added to an existing balance.
He adds that investing the minimum £150 a month for six months is £900. If you valued the miles at £80, that is not a bad return.
Meanwhile, 20,00 Avios points is enough for two economy flights to Amsterdam, Paris or Berlin, or one economy flight to Athens, Istanbul.
However, again, you will get better value adding them to an existing balance and flying long-haul somewhere in a premium cabin.
Investment platforms for easy stocks and shares Isa investing
The cheapest DIY investing platform depends on your investing plans, but for a starter stocks and shares Isa it may be best to go one that is easy to use and gives you a helping hand, writes Simon Lambert.
I’ve road tested these platforms and they deliver on those criteria.
With all of them the cheapest and easiest way to start investing will be in funds, which can be free or cheap to buy and sell.
My suggestions are Hargreaves Lansdown, AJ Bell YouInvest, Interactive Investor and Vanguard.
All offer best funds lists and/or ready-made portfolios.
Hargreaves Lansdown scores highly on being intuitive and easy to use. Finding and investing in funds is simple, as is setting up regular investments and checking up on what you have done. Its app is also very good. It’s not cheap, with a 0.45% annual fee but on smaller investment pots percentage charges should not be too high. Fund dealing is free.
AJ Bell is a more pared back experience but still simple to use. It has simple passive portfolios, a good best fund-finding tool and a cheaper 0.25% annual fee. Fund dealing costs £1.50.
Interactive Investor has a different charging model and costs £22.50 a quarter or £90 a year. That fee is given back in free trading credits, which you can use to pay to buy funds, shares, trusts and ETFs. The standard charge to buy or sell all those is £10, or £1 if you set up regular monthly investing. Interactive Investor is simple to use, and has good model portfolios.
A final more restrictive but simple and cheap option is Vanguard. The US giant has set up a UK investing platform but you can only buy its funds. It is cheap with a 0.15% per year fee and has no costs for buying and selling. You can use this to buy Vanguard’s simple and cheap passive funds, or its all in one LifeStrategy funds that invest in shares and bonds around the world.