It is likely you have noticed that interest rates on savings are at an all-time low. Your Individual Savings Account (ISA) is probably earning you as little interest as your other savings (and general bank) accounts, and there does not seem to be much chance of the base rate increasing significantly any time soon. However, there might still be ways to take advantage of ISAs.
Remaining ISA benefits
While Cash ISAs may no longer have much benefit over a savings account, Stocks & Shares ISAs might be more of interest.
These types of ISAs invest your savings into shares, and other ventures. You then receive a tax free dividend and any profit is free from Capital Gains Tax.
With growth potential currently at more than 15%, they could still be worth considering. Although you should always be aware that savings can go down as well as up.
Your personal savings allowance for both Cash and Stocks & Shares ISAs is currently at £20,000 for the 2017/18 tax year, so this is an ideal solution for smaller investments.
Both options are flexible and you can put in as little or as much (up to the limit) as you want each week, month and year.
From a tax perspective, if you are paying into savings account and earning interest, then ISAs still have the advantage over other savings accounts as the interest isn’t taxed, until you reach £20,000.
The new Lifetime ISA
There is now a new ISA that was launched in April 2017. The Lifetime ISA is designed to help you save for your first home, or for retirement.
Aimed at people aged 18-40 years, you will earn a bonus of 25% on savings up to a limit of £4,000 each year.
Plus, any money put in before you turn 50 receives an additional 25% bonus. A much better rate than any other savings option!
Savers can take out their investment after 12 months as a deposit on a first home worth up to £450,000, or alternatively, you can save until you turn 60 for your retirement.
The £4,000 limit does form part of the £20,000 total that can be invested in ISAs each year, so this needs to be factored into your investment plan.
Making the right investment choice
The amount of money you have to invest, your personal circumstances and your objectives for saving will all determine which option is right for you.
A professional can help you make decisions on the best savings and investments plan and ensure it also maximises tax-saving opportunities.