Making the most of the NISA

POSTED: 25th February 2015
IN: Personal Guides

It has now been seven months since the new individual savings account (NISA) became available, but many savers may still be searching for clarity on how to reap the benefits of the changes.


The reform of ISAs into this new, simpler product was one of the biggest announcements in the 2014 Budget, delivered by George Osborne on 19 March.

With more generous tax-free savings limits and greater flexibility, the new offering represents a better deal for savers, according to the government. So what exactly has changed, and how can you make the most of the current system?

What is the NISA?

Previously, savers were allowed to place a maximum of £11,880 in cash and stocks and shares ISAs, with no more than half of this going into a cash product.

The introduction of the NISA increased this yearly tax-free allowance to £15,000 in cash, stocks and shares or any combination of the two, and the threshold is set to rise to £15,240 from 6 April 2015.

This arrangement gives greater flexibility for consumers, with a higher annual tax-free allowance and a choice in how their tax-free savings are allocated. For example, until 6 April you could save:

  • £15,000 in a cash NISA and nothing in a stocks and shares NISA
  • £15,000 in a stocks and shares NISA and nothing in a cash NISA
  • £5,000 in a cash NISA and £10,000 in a stocks and shares NISA
  • £10,000 in a cash NISA and £5,000 in a stocks and shares NISA
  • Any combination of amounts between cash and stocks and shares NISAs, up to the overall annual limit of £15,000

Savers also have the option to transfer previous years' ISA savings between stocks and shares and cash, should they wish to do so.

It is also possible to have a single NISA for both cash savings and stocks and shares investments, as long as your provider allows this, though some people might prefer to keep separate accounts to make it easier to track different investments.

The limit for junior ISAs is £4,000 for the 2014-15 tax year, and is set to increase to £4,080 for 2015-16.

So how do I make the most of my allowance?

For people who have already opened an ISA this tax year and have the financial resources to do so, the most efficient approach will be to top up to the NISA limit of £15,000 before 6 April. This will offer maximum investment returns with no tax. If both you and your partner are in the fortunate position of having over £15,000 to invest, make sure you both take advantage of the NISA to effectively double your tax-free allowance.

However, for most consumers, saving is a long-term, gradual process. The best method is of course to sit down and work out how much you can afford to save every month, and set up a standing order to ensure you stick to your schedule.

People who will be using some of their tax-free entitlement for cash savings should think about what sort of product is best for them.

There are instant-access accounts that allow you to deposit and withdraw funds as you please, but a fixed-rate deal could offer more generous interest returns if you are willing to lock your money away for a set period. It is also worth noting that once you've reached your allowance for the year, if you withdraw funds you will not be able to replace them in the same tax year.

If you take the decision to go for a stocks and shares investment, it doesn't offer the security or easy access of a cash account, but does have the potential to deliver higher returns. However, there is always the risk that your investment could go the wrong way.

In order to get the best out of a stocks and shares product, you should view it as a medium to long-term commitment.

You should also think about how much risk you are willing to take. There are many types of account available, which have different levels of risk and varying potential returns.

If you are interested in stocks and shares investment but want to minimise your risk, you could go for an account that invests in a range of assets, meaning a fall in the value of one could be cancelled out by growth in another.

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