With the end of the tax year on April 5th looming, the amount of time left to take advantage of Isa savings is dwindling. If you’re looking to make the most of extra cash, even if you only have a little, then you should consider opening an account, or switching your current provider.
What is a cash ISA?
The government wants to help people avoid financial issues, and so takes measures to promote saving. Having funds to fall back on means that people hit by unexpected costs or affected by redundancy are less likely to lose their home or even face bankruptcy.
Provision of tax-free savings allows people to benefit from much higher interest rates than they would usually receive. Especially since the Bank of England slashed the base rate in response to economic difficulties, savings accounts tend not to offer substantial returns.
Usually, the government will take a slice of the profits which Brits earn on monetary investments. Basic rate taxpayers usually hand over around 20 per cent of this income, while those on the highest wages can give around 40 per cent. However, this does not occur on funds protected by an Isa.
How much should I save?
Just 24 per cent of Britons are planning to capitalise on their full allowance this year, according to NS&I; if you’re looking to maintain financial health and avoid seeking debt advice in the forthcoming months, you should ensure you’re not in the group that misses out.
You can benefit from tax-free savings on funds worth up to £5,640 for this fiscal year, so if you have this amount available in accounts offering low interest, you should make sure to transfer the cash and take advantage of considerably higher returns.
According to Nationwide research, the taxman earns an extra £500 million every year because people fail to capitalize fully from their yearly Isa allowance.
However, it doesn’t matter if you don’t have much to spare – around a fifth of consumers say they will just utilize part of the allowance. Most banks allow you to save as little as £1, so even those thinking about debt solutions can profit by sparing whatever they can.
What if I need the money back?
You can take the funds out of an Isa account, including the funds accumulated through tax-free interest, at any time. However, depending on the account you choose, you might surrender special benefits such as long-term bonuses.
I already have an ISA, what should I do?
You are only able to open and take advantage of a single Isa account each year, but you are able to switch providers on each occasion. This means that it is not necessarily in your best financial interest to stay with the same bank during this fiscal period, so make sure to shop around.
Consumers might also benefit by transferring funds to a new account offering higher rates. MoneySupermarket found that British savers will waste £500 million by not changing over before the April 5th deadline, because bonuses offered on old savings will expire.
How do I find the best ISA account?
There are lots of price comparison websites which can help you to find the market-leading deal on offer at the moment, so get on the web to make sure you will receive the highest interest possible on your funds.
New customers can try the likes of Money.co.uk, GoCompare or MoneySupermarket. If you already have cash put away in old Isa accounts, the Which Savings Booster could help you to determine whether it’s a good idea to switch.
However, you should take personal requirements into consideration alongside the interest rate offered. If you think you’ll want to draw the money out soon, an instant access account might be best, whereas those investing in the long-term might check out five-year fixed-rate deals.
Can young people take advantage?
UK residents over the age of 16 years are able to make savings in an Isa account, but those under 18 can also benefit thanks to the introduction of Junior Isas. However, only those who are not eligible for a Child Trust Fund, which also offers tax-free interest on cash, can open one.
Parents or youngsters themselves can put up to £3,600 in for this fiscal year, but, unless there are exceptional circumstances, the funds will be secured until the holder turns 18.