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Isa countdown: two weeks left
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Good news is beginning to creep back into the savings market: interest rates for several Isas rose this month, but many of us are still missing out on the chance to save tax-free. Time to sniff out the best deals
Gordon Brown hinted last week that Isa limits may rise in the next Budget. The Prime Minister was speaking on Radio 4 when he suggested that April’s budget may include an announcement about Isas.
Abbey has this week released figures which show only four in 10 Brits are using their Isa allowance - meaning the majority of us are either needlessly paying tax on our savings, or failing to save altogether.
At the moment everyone aged over 16 can save up to £3,600 a year in a cash Isa – or individual savings account – and up to £7,200 in cash and equity Isas combined. The main benefit of Isas is that interest is paid tax-free. Savers have until 5 April to make use of their allowance for the 2008/9 tax year. However it’s a case of “use it or lose it” – if you miss the deadline, you will lose your tax-efficient Isa savings allowance for the 2008/9 tax year.
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David Elms, chief executive of Unbiased.co.uk says: "Especially in the current environment where interest rates are low, it is important that people don't pay unnecessary money to the taxman. Savers should make sure they have made full use of their annual Isa allowance.”
Cash Isas
Cash Isas work like normal savings accounts but unlike standard accounts where you are taxed on any interest paid, the interest is paid gross. Like other savings accounts, some cash Isas have fixed rates and some have variable rates. Some cash Isas might also have other rules about how long you have to lock your money in for, how often you can make withdrawals, and minimum and maximum deposits. The maximum amount you can invest in a cash Isa each year is £3,600.
Equity Isas
Equity Isa plans are sold by stockbrokers, IFAs, fund managers, banks and other authorised financial institutions. You can buy a plan and take advice on what to put in it, or you can have a “self-select” Isa and make your own decisions. An equity Isa isn’t really a product in itself but a tax-free wrapper to shield your investment from the taxman. You can invest up to £7,200 in an equity Isa each year. However, the total combined limit for cash and equity Isas is also £7,200, so in practice, you might invest £3,600 in a cash Isa and £3,600 in an equity Isa, or the whole £7,200 in an equity Isa.
