We are often sending notes on Pensions, so for a topical change we are moving to ISA’s (Individual Savings Accounts) but could your tax free ISA be nicer?
The reforms last July did far more than just adding an N to its title to become a NISA.
It is now a simplified savings vehicle which is very tax efficient, with an annual allowance of £15,000 increasing to £15,240 in April.
The confusion of Stocks and Shares ISA’s and Cash ISA’s has been removed, as have the restrictions on transfers. Equally as of December last year, individuals can inherit their spouses ISA on death and keep the tax efficient status of them.
You can now invest as little, or as much of the whole allowance in Cash or Stocks and Shares as you like, and transfer back and forward between them with no limitations.
There is however one ‘fly in the ointment’. The current levels of returns offered under CASH NISA’s.
Easy access accounts pay at best 1.5% and these are few and far between. The top notice accounts around 2%, and even tying up your savings in a fixed term account for 5 years only get 2.25%.
MANY PEOPLE MAY WELL THINK WHAT IS THE POINT OF HAVING AN NISA WITH TAX FREE RETURNS, IF THE RETURN IS SO LOW?
Equally, many people may not even be quite sure what rate they are getting! Worryingly, many savers enter an account with the current “teaser” rate, and subsequently find out they are receiving a much lower rate.
A big problem is the fact that is does not seem likely that returns will improve in the near term. This can be evidenced by the incredibly low fixed rate mortgage deals that are now available. Based on the fact banks will lend at such low rates on fixed terms it’s very clear we are not going to see an improvement in interest rates for some time. In a couple of weeks the base rate will have been at 0.5% for 6 years.
Whilst mortgagees and borrowers have clearly been able to benefit from this low rate, savers have clearly been the victim, and have seen their annual returns diminish. In fact they have been losing money in real terms when you take account of the fact inflation has averaged 2.92% over the last 5 years.
If you have concerns about your existing ISA investments or you are looking to make your capital work harder, help is just around the corner.
Keep your eye on your inbox for next ISA announcement early next week. In the meantime you can read our 10 ISA Myths on the website.