End of Tax Year ISA Special - Use it or lose it!

23rd March 2016

If you’re yet to use your cash ISA allowance for this tax year and need information on the best home for your ISA savings, read on.

Traditionally at this time of year, providers compete for savers’ ISA money by enticing them in with improved offers and market leading rates. However, this tradition has been declining noticeably over the last few years, with fewer providers playing the game. This year has descended to a new low with very few providers making any positive moves and more accounts dropping out of the best buy tables than entering them. At this stage you could be wondering whether it's worth paying into a cash ISA, but if you do not use your cash ISA allowance this tax year, you will lose it forever, reducing the amount you can save tax-free in the future.

There are still cash ISAs on the market that pay a competitive return, but you may need to act quickly to take advantage, as we get nearer to the end of the tax year. Some providers stop taking deposits into cash ISAs before the 5th April, indeed Aldermore for example has already stopped allowing deposits for this tax year and has stated that it won’t now have any ISAs available to open until the 2016/17 tax year.

Below are some recommendations for you to consider when looking for a home for your 2015/16 cash ISA allowance; remember they may not be around for long, so if you are interested, act before it is too late.

If you are looking for easy access to your money, Coventry Building Society pays 1.40% tax free/AER on its Easy Access ISA (2). Whilst the account does not accept transfers of previous ISAs, the account could suit those just looking for a home for this years’ ISA allowance.

For those happy to be restricted on access to their ISA funds, there are a number of accounts available on the market that offer a higher return in exchange for giving notice on withdrawals. At the moment Teachers Building Society pays 1.50% tax free/AER on its Cash ISA Notice 90 (Issue 5) on balances above £100 and for those with larger deposits, Clydesdale Bank and Yorkshire Bank also pay 1.50% tax free/AER on balances above £15,000 on its 40 Day Notice Cash ISA.

You are able to get a higher return on your cash ISA by tying your funds up for a fixed period with a Fixed Rate Cash ISA. In exchange for agreeing to not access your funds, unless you pay a penalty, the interest rate will be fixed for up to five years. For those looking for a shorter fixed term, Kent Reliance pays 1.45% tax free/AER for one year. Those looking for longer term stability may consider Shawbrook Bank, paying 1.85% tax free/AER for 3 years. At the moment, the highest rate for the longer five year term is 2.33% tax free/AER from United Bank UK.

In addition, savers may consider using Sharia compliant cash ISAs, though the way the return is calculated differs to a standard savings account. Sharia compliant accounts pay an expected profit rate rather than interest, so the return is based on the profit made by the provider on investments made. Therefore, there is an element of risk involved in this type of account, as the return is not guaranteed, although the capital is fully protected up to the Financial Services Compensation Scheme limit of £75,000 per saver. Al Rayan Bank offers Sharia compliant cash ISAs with a 120 Day Notice Cash ISA paying a 2.00% expected profit rate and a 12 Month Fixed Term Deposit Cash ISA with a 1.90% expected profit rate. As you can see, these accounts pay significantly higher returns than standard equivalents, though you must ensure that you are comfortable with how returns are calculated and fully research this area of the savings market before proceeding.

Savers may have started to disregard the cash ISA, as the Personal Savings Allowance that is due to be introduced in the new tax year will mean tax free interest for many savers on standard accounts. However, it is worth noting that the amount needed in an account before you breach the Personal Savings Allowance will reduce as and when interest rates rise, whereas the balance you hold in a cash ISA will remain tax free regardless of the interest rates paid. Cash ISAs do not count towards your Personal Savings Allowance and by not using your cash ISA allowance you are reducing the amount you can save overall tax free in the future, so they should still be considered as part of your savings strategy.

If you would like to discuss where to put this tax years’ ISA allowance in more detail, call us on 0800 321 3581 to talk to one of our expert savings advisers, we’d love to hear from you.

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