As one tax year ends and the next one begins, for many savers, March and April is ISA season and an ideal opportunity to boost their savings.
Cash ISAs allow people to save without paying tax on the interest that they earn. The amount that an individual can save tax free each year (April to April) is known as the ISA allowance. This changes each year and is currently £15,000, increasing to £15,240 from 6th April.
Since savers can’t roll forward any unused allowance from one tax year to another, placing as much money as possible into your account before the new tax year starts on the 6th April, means you make the most of your tax free savings. Whether you already have money in an ISA and are wondering what to do next, or you’re thinking of opening an ISA for the first time, here we run through a few of your options to make the most of your annual allowance.
It’s important to review the ISA rates on offer before you open an account, and once you’ve started saving, to make sure you’re getting an interest rate that you’re happy with. Rates can fluctuate and so if your interest rate has dropped, it could be worth starting to think about switching.
Although you may be content with your current bank, it may not necessarily be the best place to get an ISA. Different providers offer different benefitsand so it can pay to shop around and perhaps have your ISA at a separate bank from your current account.
Keeping your existing ISA
If you’d like to keep your existing ISA going into the new tax year, you can. There is no limit on how much you can hold in your ISA in total, but there is a limit to how much you can deposit each year.
Whether you use some or all of your allowance in one year, you can keep this money in your account running into the next ISA season. You will continue to accrue tax free interest on that money, and it won’t count towards the next year’s allowance.
Transfer your old ISA
While it’s possible to use the same account for many years, as long as you’re not locked in a fixed-rate period, you can move your money to another ISA provider. But it’s vital that you don’t move the money yourself by withdrawing it or transferring it manually. Your new ISA provider will make the transfer for you so that your money will retain its tax-free interest. Terms and conditions may apply when transferring an ISA account and you should check these with your current provider before transferring.
Pay as much as you can early on
Depositing as much of your allowance as you can early on in the tax year can really pay off for the duration of the 12 month period. If you had put the full £15,000 in at the start of this tax year, you’d accrue more tax free interest than you would if you were to place all the money in your account the following February.
If you have not used all your ISA allowance for this year, it’s not too late to do so. You have until the 5th April to maximize your allowance, and remember you cannot carry forward any unused allowance into next year.
Consider a fixed rate cash ISA
If you have a large sum of money to deposit but don’t need regular access to the money, a fixed rate cash ISA can be ideal for maximising your interest and making your money work harder. Banks often offer savers higher interest rates on fixed savings. However, while fixed-term ISAs can offer the best rates, there’s also an element of risk as your rate could be overtaken by other accounts, particularly if you opt for a deal that lasts a number of years.
Set up a standing order
If you are planning to save money each month rather than pay a lump sum into your ISA at the start of the tax year, a standing order can help you to make regular payments.
Remember that rates can change
Whether current interest rates are high or low, remember that they can change. Some people dismiss ISA accounts if interest rates aren’t as high as they’d like, but if you were to save the full ISA allowance every year for 5 years and not withdraw any money you would hold in excess of £77,000 in your account, this assumes an interest rate of 1% each year. For savers looking to make the most of their money and reap the benefits of tax-free interest, ISAs can offer a great opportunity to save. With ISA season upon us, now could be the time to make up your remaining allowance for the 2014/2015 tax year.
Aldermore have a selection of Fixed Rate Cash ISAs and a Notice Cash ISA so that you can make use of your allowance with terms that suit you and your saving goals. For more information, please don’t hesitate to get in touch.
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