New Isas make it even easier to build a nest-egg
Cash accounts make sense for savers, but with interest rates low, it may be time to invest
Personal Finance Editor
Wednesday 18 June 2014
It’s just under two weeks until you have the chance to stash money away in so-called New Isas (Nisas). The savings schemes were trumpeted by the Chancellor when he announced his Budget in March. The headline change is that the amount you can save tax-free is increasing to £15,000 from £11,880.
But the big change is that they have become much more flexible. From 1 July you’ll be able to transfer cash from savings accounts to investments and then back again; up until now you have only been allowed to transfer one way.
As part of that, you’ll be able to keep your whole Nisa allowance in cash savings, meaning the limit will actually climb from its existing level of just £5,940 – half the total Isa allowance – to £15,000.
So Nisas should be considered by anyone who has cash on deposit. Why? Because paying tax on your savings seems a little silly if the government encourages you to avoid doing so.
If you’re a basic-rate taxpayer, the rate you can get through a Nisa is worth 20 per cent more than outside the tax-free environment. If you’re a 40 per cent taxpayer the rate is actually worth 40 per cent more.
So the companies that offer Isas and Nisas are expecting the biggest move to come from savers who are waiting until Tuesday week to transfer cash out of low-paying deposit accounts into slightly higher-paying Nisas.
The main problem is that, behind the Nisa hype, interest rates for savers are still lamentable. However, even though they are at record lows, things are getting better.
With inflation falling to 1.5 per cent, as revealed by official figures yesterday, there are more savings accounts that actually offer inflation-beating returns now than for a long time.
If you look at standard tax-paying accounts you wouldn’t think so. Analysis by Moneyfacts suggests that just 72 of the 619 in the market today negate the effects of inflation.
When it comes to Isas the picture is much more positive. More than half – 115 out of 215 – now offer rates that beat inflation. And there are likely to be better offers coming as Nisas launch on 1 July.
Yet millions of savers don’t use the tax-free accounts, according to research by NFU Mutual. It reckons as many as 12.5 million adults save or invest without making use of Isas.
“By not making use of an Isa, savers and investors could be giving money to the taxman unnecessarily,” says Sean McCann of NFU Mutual.
Meanwhile Fidelity suggests that savers who use their full Nisa limit could be Isa millionaires – with £1m sheltered from the tax authorities – in their 25th year of investing instead of 29 years with the current allowance of £11,520.
Of course that relies on markets and investments performing favourably, rather than low-paying savings accounts. And the new-look Nisas do offer a much easier way to start investing, in the sense that you can take money out of the markets and stick it back on deposit if you become worried about the risks.
“Investing in cash is your least risky option but no one ever became a millionaire by leaving their money in a cash account,” says Maike Currie, of Fidelity.
In fact, the firm has calculated that savers could have ended up with more than twice as much over the last decade in a stock market-linked fund than a deposit account.
It says that £15,000 put into the FTSE All Share index over the last 10 years would have grown to £35,218.50. The same £15,000 into the average UK savings account would have yielded just £16,582.65, a difference of £18,635.85.
That’s food for thought, but it’s worth bearing in mind that the best-paying savings account would have grown a lot more while a more risky investment fund could have done much more poorly.
The truth is that making use of Isas – and from Tuesday week Nisas – makes sense. The decision is whether to go into cash or equities.
Donald MacInnes: 'I have to have £500 a month spare from now until at least 2035'
HSBC becomes first bank to offer five-year fixed rate mortgage with interest rate under 2%
Are finance apps stealing your personal data?
Pension freedoms: How to deal with cold calls from scammers
Barclays new Blue Rewards hands cash to customers. What’s the catch?
- 1 Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
- 2 Katie Hopkins and The Sun editor David Dinsmore reported to police for incitement to racial hatred following migrant boat column
- 3 Parma, Missouri: 80 per cent of town's police quit after first black mayor is elected
- 4 Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
- 5 Google search history can now be downloaded in its entirety, mass embarrassment expected
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...
Day In a Page
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 four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
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.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
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.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
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.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
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
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000