Deadline looms for ISA allowances
Sunday 25 March 2012
Savers are now on the home stretch with the 5 April end of tax year deadline less than a fortnight away. After that date this year's tax-free individual savings account (ISA) allowance is lost for good.
Cash ISAs are big business for banks and building societies, and the past few weeks have seen a full-blown ISA rate war break out as providers jostle for position at the top of the best-buy tables.
At the last count by data analyst Defaqto there were 377 cash ISAs available from 95 different providers. Some table-topping accounts held the No 1 spot for just a matter of days before being kicked into second place by another new launch.
Rules and limits
Experts are always keen to push the virtues of ISAs and their tax-free status, unlike normal savings accounts where tax is payable on interest.
All adults over the age of 16 can save a total of £5,340 in a cash ISA for the year 2011-12. The allowances go up for next year's ISA allowance; from 6 April you'll be able to save £5,640 a year in a cash ISA.
But despite the tax benefits, research repeatedly shows that savers aren't making the most of ISAs. Comparison site uSwitch.com has found that only half of Brits intend to save into a cash ISA before the end of the tax year with only a quarter of savers making full use of their ISA allowance.
Michael Ossei, personal finance expert at uSwitch.com, says: "If savers don't know the ABC of investing in an ISA they could be missing out on maximising the tax efficiency and maximising the return on their money. This means they will be losing out."
The rules state that you can only contribute to one cash ISA per tax year, so it's important to pick carefully. Savers have a plethora of products to choose from; easy-access accounts with introductory bonuses, variable rates, and short and long-term fixed rates. Some accounts also allow you to transfer money held in an existing ISA for better returns.
Easy or instant-access cash ISAs do exactly as the name suggests and give you easy, penalty-free access to your money.
The best account this year is the AA's Internet Access ISA (issue 3) which pays 3.5 per cent. But watch out for the small print: transfers from previous years' ISAs are not allowed, and the eye-catching rate includes an introductory bonus of 3 per cent for a year, meaning that in April 2013 it will fall to just 0.5 per cent annual equivalent rate (AER).
Most of the best easy-access accounts this year include an introductory bonus for just 12 months. For example, the rate on Santander's Direct ISA Issue 9 drops from 3.3 per cent to 0.5 per cent in a year's time.
Cheshire building society is offering a rate of 3.35 per cent for longer – 18 months – with instant access, but after that the rate falls to 1 per cent.
Another small print clause to look out for when choosing an ISA is the minimum opening deposit. The AA's Internet Access ISA requires you pay in at least £2,500 to get started, as does Santander's Direct ISA.
If you're just starting to save and don't have a lump sum, Halifax's ISA Saver Online pays 3 per cent (including a 12-month bonus of 2.75 per cent) and has a minimum £1 deposit, as does ING Direct's Cash ISA which pays 3 per cent guaranteed for a year.
Whether an account allows transfers in from previous years' cash ISAs is a big issue. Someone who's saved the maximum in a cash ISA each year since the accounts were launched in 1999 would have a pot of £39,300 plus interest of up to about £16,000. Yet some older ISA products pay as little as 0.1 per cent AER.
MoneySupermarket's Kevin Mountford suggests those with older ISA funds check their current rate and switch to a better deal if necessary.
"It is now very easy to transfer an ISA with many providers paying interest immediately, even before the funds have arrived in the account. However, make sure you follow the ISA switching rules otherwise your savings could lose their tax-free status," he says.
Yet many new ISAs – such as the AA's best-buy easy-access account – only allow the current year's allowance to be saved.
The best easy-access ISAs allowing transfers in are Santander at 3.3 per cent, Aldermore's 60-day notice account at 3.15 per cent and Nationwide at 3.1 per cent, although you'll need a Nationwide card-based account to be eligible for the latter.
Fixed-rate ISAs mean tying up your money for a certain period of time. Rates are generally better on fixed rates than easy-access accounts.
Although fixed-rate ISAs give savers certainty, a potential downside is that they won't be able to access their money penalty-free and could miss out on higher rates which later become available.
This year Halifax is leading the way with fixed ISA rates. Its five-year fix pays 4.5 per cent, four years 4.35 per cent, and three years 4.25 per cent. All the accounts allow transfers in from previous years.
If you want to commit for less time, Santander has a two-year fixed ISA at 4 per cent with a bonus 0.1 per cent paid at maturity if Rory McIlroy wins an eligible golf major.
Fixed vs variable rates
Fixed rates have paid higher interest than variable-rate ISAs over the past few years.
Whether they will continue to be a better option largely depends on what interest rates do in the next few years. If the base rate stays at 0.5 per cent until 2014 as widely predicted, we'll be unlikely to see any eye-catching, instant-access rates before then so a fix could be a good plan.
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
Bargain Hunter: Exclusive discount on a SmartGlider - a self-balancing electric scooter
My Tinder date asked for a refund when I declined a second meet up
Number of parents moving to their desired school catchment area is increasing, according to Santander research
Bank-beating exchange rates on your international payments
Be warned of the dirty tricks the bailiffs pull
- 1 If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
- 2 Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
- 3 Make your voice heard: Sign The Independent's petition to welcome refugees
- 4 Refugee crisis: Aylan's life was full of fear - in death, he is part of 'humanity washed ashore'
- 5 German police forced to ask public to stop bringing donations for refugees arriving by train
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...
£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...
Day In a Page
With four bedrooms, this spacious maisonette in a mid-terrace period-style house in Holland Road is well-maintained and offers high ceilings and period features.
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.