The end of a tax year always signals changes in the financial sector, and is a good time to have a rethink about where you are investing your money. Individual Savings Accounts (ISAs) are a great way to save, as there is no tax to pay on interest earned, and the new allowances that came into affect on April 6 mean you can now stack up even more tax-free savings.
The first thing you will have noticed when the new rules came in, is that the ISA system has been simplified to make the different types of account that currently exist less confusing. Only two types of ISA are now available: the cash ISA and the stocks and shares ISA.
Mini-cash ISAs - the cash component of a maxi ISA and TESSA-only ISAs have now automatically become Cash ISAs; while mini stocks and shares ISAs - the stocks and shares component of a maxi ISA and Personal Equity Plan (PEP), have been reclassified as a stocks and shares ISAs.
Even better news for savers is that the yearly tax free allowance has also increased. It is now possible to invest an extra £200 a year, with a maximum of £7,200 if you have both a cash ISA and a stocks and shares ISA. The maximum investment in a cash ISA has gone up from £3,000 to £3,600, while you can now transfer from a cash ISA to a stocks and shares ISA should you so desire, which was not previously permitted. However, it is still not possible to convert a stocks and shares ISA to a cash ISA.
So all that is left to do is find the best deal, and with so many already on the market and new deals being launched all the time, there is certainly no lack of choice. Among many others, Skipton Building Society and Barclays recently launched new ISA offerings in the hope of enticing savings customers.
Skipton, for example, is offering a new one-year, fixed-rate cash ISA at 6.26 per cent, so that whatever happens with the Bank of England Base rate, customers with this type of ISA will be guaranteed a steady interest rate on savings. Meanwhile, Barclays introduced in March what it claims is a market-leading cash ISA called the Tax Haven ISA, which offers a rate of 6.5 per cent, including a one per cent gross bonus for 12 months.
However, interest rates are not the only thing to bear in mind when choosing a cash ISA. Some accounts allow easy access to your invested funds, while others impose penalties for withdrawals. And different providers allow you to make transactions in different ways: ranging from in-branch and postal accounts to telephone and online savings accounts.
Stocks and shares ISAs could also be a sound investment option, particularly if you can afford to keep savings in your account for a prolonged period, say five years. This type of ISA will allow you to invest in collective shares such as Unit Trusts and listed shares.
So, whether you have thousands of pounds to put away, or just a few pounds each month, it is worth thinking about which is the best type of ISA for you. Decide how long you want to keep your money locked away for, think about how you wish to operate your account and compare interest rates before making a decision.
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