Only a month remains until the first wave
of bank customers can benefit from the higher ISA allowance introduced in the
last Budget. On the 6th October 2009, savers over the age of 50 can
increase their allowance from £7,200 to £10,200, of which £5,100 can be
invested into each of a cash ISA and a stocks and shares ISA. Everyone else can benefit from
the increase from 6th April 2010.
An ISA (or Individual Savings Account) is a
saving product introduced in 1999 to replace PEPs and TESSAs, and you can
either use an ISA to save cash at a competitive interest rate or to invest in
stocks and shares. The popularity of ISAs stems from the fact that any interest
you earn from an ISA account will be tax-free, and likewise any capital growth
you see from investing in shares or funds will also be tax free (with no tax to
pay on any dividends you receive).
Previously, the most you were allowed to save in a cash ISA and in a stocks and shares ISA was £3,200 in each, totalling £7,200 of tax-free savings each year. Now that this limit is on the up, it's well worth making use of the increased allowance, especially with savings accounts offering lower returns across the board than those available a few years ago.
Money that is saved in the current tax year can be added to a cash ISA or a stocks and shares ISA in the next tax year (starting April 6th 2010), but you must transfer the full amount into the ISA at the same time. It's worth noting that you can transfer savings from a cash ISA to stocks and shares, but you cannot transfer in the other direction. Also, a great rate on an ISA may be dependant on you taking out another product with the provider, and that additional product may not necessarily be as competitive - so make sure the combined offering is worth your while before signing up.