It’s more important than ever to maximise the return on your savings, however many people aren’t making the most of their tax-free savings accounts. This tax year we can all save up to £10,200 in ISAs and not pay any tax on the interest. Anyone who pays tax should think about putting money into an ISA - and if you already have money in one, make sure you are getting the best return possible.
There are a host of resources to choose from when looking at the best option for your situation, with websites such as SimplyFinance.co.uk offering helpful ISA value calculators that can be of assistance.
The tax year runs until 5th April 2011 and if you are a taxpayer and haven’t already put any money in an ISA now is the time to do something about it. Research from NatWest shows that almost two thirds of people don’t have a cash ISA, and only 16 per cent of people have opened a cash ISA this tax year.
There are two types of ISA – cash and stocks, and shares. The simplest is a cash ISA, as it lets you save money in a savings account without any risk to your money, and the interest you receive is free of tax. Stocks and shares ISAs let you put your money into stocks and shares and any gains you make are free of capital gains tax and income tax, although you will have to pay 10 per cent tax on any dividends you get from a stocks and shares ISA.
If you have money already in a cash ISA you should check what return you are getting on your savings and think about moving it to get a better rate. It should now also be easier to move your money as a result of a super-complaint by Consumer Focus and a subsequent investigation into transfer times by the Office of Fair Trading (OFT) last year, that means from the end of 2010 transfers should be taking no more than 15 working days. Previously transfers could take up to 23 working days to be completed. Once you find a better rate the new company will arrange to transfer the money to your new ISA.
Fionnuala Earley, an Economist at NatWest said: "As fiscal austerity measures begin to bite, it makes even more sense to plan finances carefully and take advantage of any schemes that help protect or enhance savings and investments. Three quarters of a million more people will face the 40% tax rate from April but by making sure you make full use of tax-free ISA allowance every year, you can make the most of your savings and avoid this higher tax rate. The tax-free ISA threshold increases this year and so should be grabbed firmly with both hands."
If you want to invest money in a stocks and shares ISA it is best to get independent financial advice to help you find a suitable investment as your capital will be at risk and you need to be investing for at least five years and probably longer. Before investing in the stock market you should also make sure you have an emergency fund of three to six month’s salary you can access in an emergency and make sure your family is protected if you die, or aren’t able to work for a prolonged period of time.