Out with the old and in with the new – tax year that is
Last chance to use this tax year's ISA allowance. Use it or lose it!
Sunday marks the end of the tax year, the last chance to take advantage of your 2014/2015 tax year cash ISA allowance. As clichéd as it sounds, you need to use it or you’ll lose it. Everyone aged 16 or over has an ISA allowance of £15,000 (current tax year), increasing to £15,240 from 6th April 2015, but they must take advantage by the end of the tax year in order not to miss out. Any interest earned in a cash ISA will be tax free, so the earlier you save the more tax free interest you’ll accumulate.
From Monday, the start of the new tax year, your new £15,240 allowance is available and for those who want to take advantage, it makes sense to open your new ISA as soon as possible for yearlong tax free interest.
Use it or lose it – 2014/2015 tax year
For any savers who have left it to the last minute to open this tax year’s ISA, and there are a lot of you, you have a matter of days and limited options available. That said, the key is to find and open an account now, so you don’t lose your allowance; you can always move the money at a later stage. The good news is that there are still some good cash ISA deals to be found which you can snap up before midnight on Sunday 5th April. Postal applications are out, due to the short deadline and unless your local branch is open over the Easter weekend you could also struggle. However some providers are opening their branches specifically for ISA applications, which is encouraging. And, if you’re happy to open your account online or over the phone (with a debit card) you should be fine.
CLICK HERE TO SEE THE BEST LAST MINUTE CASH ISA RATES AVAILABLE AND HOW TO APPLY TO BEAT THE DEADLINE
Start as you mean to go on – 2015/2016 tax year
It always surprises us just how many savers leave investing into their Cash ISA until the end of the tax year, missing out on valuable tax free interest over the whole year. But the last minute dash of applications in the run up to the end of the tax year tell us just that.
For those savvy savers looking to invest for the new 2015/2016 tax year, as soon as possible, check out our guide to the best rates to open from next week (week commencing 6 April).
What’s the point of a Cash ISA?
The announcement in the recent Budget that all savers will have a new Personal Savings Allowance (PSA) has raised a few questions about the benefits of using a cash ISA in the future.
As we reported in our recent article, the PSA is a new allowance which should be introduced in April next year (2016) which will mean that for basic rate tax payers, the first £1,000 of savings interest earned will be tax free. A smaller PSA of £500 will be available to higher rate taxpayers but those earning £150,000 a year or more will not benefit at all.
Although with savings rates at the levels they are today this means that savers will be able to deposit a fairly large sum of money into a savings account and be below their PSA, we still strongly believe in the benefits of at least considering the use of their cash ISA allowance.
For a start, there is no guarantee that the PSA will be introduced, and it certainly makes sense to consider using your cash ISA allowance in the up and coming tax year before the allowance is due to be available. But even if it is introduced, a cash ISA should be thought of as an additional tax free allowance, which may be more useful in the future should your personal circumstances change, or indeed if interest rates rise a great deal, pushing the amount you earn on your non-ISA cash, over the allowance.
And remember the cumulative effect of saving year in year out. Anyone who saved the maximum allowable into a cash ISA each tax year since they were introduced could have amassed a sizable sum earning tax free interest. Those who have always used their cash ISA allowance could have built up a lump sum of over £80,000 or more and if they had used their TESSA allowance (the predecessor to cash ISAs) before this, they could now have at least £90,000 in total in a tax free savings account. Even with rates as low as they are, this amount could be earning £1,350 pa in the current best buy easy access ISA, well over the Personal Savings Allowance. Better in your pocket than in the tax man’s? *
Of course it is down to your individual circumstances and if you want to discuss what might be right for you, feel free to call one of our savings advisers on 0800 321 3581. They can discuss the rates on offer on both ISA and non ISA accounts.
* Assuming the full allowances were used each tax year and earned the equivalent of the Bank of England base rate.
How ISA savers have suffered
With the Bank of England base rate now sitting at a historic low of 0.50% for over six years and with government interventions including the Funding for Lending Scheme introduced in 2012, rates haven’t been this low in living memory.
Inflation (CPI) is currently sitting at 0% meaning that all accounts are now at least making money in real terms. However, given that rates are so low this isn’t making much difference to many savers' wallets. Inflation is a bit of a double edged sword for savers in the current climate. Lower inflation means your money goes further but this puts less pressure on the Bank of England’s rate setting committee to increase the base rate which in turn (you would hope) would increase savings rates.
Having said this, it’s important to make the most of what we’ve got. There’s little point leaving money languishing in accounts paying less than 0.50%, but according to the FCA's recent cash study, there is £160 billion pounds doing just this, and a further £12 billion in easy access cash ISAs paying just 0.50% or less. With cash ISA rates of over 2% available it’s still worth making your money work as hard as possible for you.
There are encouraging factors on the horizon. The recent FCA cash market study proposes to help encourage us out of inertia and into a better paying savings account, which in turn should increase some competition in the market. There’s the new personal savings allowance which may encourage more of us to save - in the best rates of course - and in the meantime, take advantage of rates being offered by the ‘challenger banks’. Even if you’ve never heard of them, as long as they are regulated by the FCA and the PRA and a part of the UK FSCS, up to £85,000 per person, per banking licence is protected. So why not choose the best on offer.
Of course if you want to speak to us about anything, please feel free to call one of our savings advisers on 0800 321 3581.