Principality. Where home matters.
27 March 2017
Need-to-know information on cash ISAs to prepare you for the new tax year
We’re fast approaching a significant milestone for savers across the country- the end of the tax year. With the big date looming on April 5th, now is the time to make the most of your remaining ISA allowance and review your current savings account to be sure you are getting the best deal. Here, Principality Building Society’s Senior Savings Product Manager, Kate Murray, shares the need-to-know information on cash ISAs to leave you prepared well in advance of the new tax year.
With so many products on offer and changes to the terms and conditions of ISAs to contend with, navigating your way to finding the right ISA for you can feel like a mammoth task. But with the end of the tax year on the horizon, there’s no better time to give your current ISA that final boost. Just a little bit of time spent researching the market for competitive products can give you peace of mind that you’ve made a measured decision. Here’s what you need to remember:
1. ISA = tax free interest
The key thing to remember with a cash ISA is your savings will earn interest tax-free until you withdraw the money. This is additional money you could earn on top of your current savings and the more money in your savings account, the more interest you could earn. That’s good news whether you’re saving for your first home, a retirement fund, or simply preparing for the future.
2. The ISA allowance, and changes to expect
Currently, the ISA allowance stands at £15,240 for the tax year 2016/17, but this is changing as of 6th April 2017 where the new allowance will be £20,000- good news for savers.
3. The rule is ‘use it or lose it’
Bear in mind that the allowance on ISAs runs for a year, April to April, and can’t be rolled over into the new tax year. So, if you don’t top up your ISA to its limit before 5th April, you can’t carry the remaining allowance over to the new tax year. That’s why providers encourage savers to use their allowance up or lose the tax-free interest on offer.
4. ISA options
There are currently three types of ISAs available, a Cash ISA, a Stocks & Shares ISA and an Innovative Finance ISA. You get to choose whether you want to invest in just one type of ISA or mix 'n' match as desired. However you need to ensure that the sum of all three of these ISAs doesn’t exceed the annual allowance of £15,240 for the tax year 2016/7 or £20,000 from 6th April 2017.
5. Transferring your ISA funds
It’s the perfect time of year to review your current ISA and see if you’re getting the best deal on interest rates. With the Bank of England base rate at 0.25%, these are understandably low across the board at the moment, but there are some standout products on the market that could offer you greater return on your savings. If you do want to transfer your savings to a new account with a different provider, you must ask the new provider to transfer the money so the tax-free status on your savings is maintained. Read up on the T&Cs with your new provider around transfer fees – these can often arise when you transfer your savings, but not every provider will agree to pay them. Ultimately, check that moving your money is worth it, against the cost of any fees you could incur.
6. When it comes to withdrawals…
Being allowed to take money out of your account depends on what type of ISA you own. While an instant access cash ISA does what it says on the tin and allows you to withdraw money as you wish, a fixed-term cash ISA will have different rules, usually accessing your money at the end of the ISA term, be that a year, two years or more. All ISA products have varying conditions, for instance some instant access accounts will only allow you to make a certain number of withdrawals every year, or fixed-term ISAs may allow early withdrawals (but often with a penalty fee).
7. Relying on your cash ISA
Aside from finding the ISA that works for you, you also have to put your trust in the bank or building society you’re saving with to protect your hard-earned savings. Rest assured that this money is protected by the Financial Services Compensation Scheme (FSCS), up to a limit of £85,000 for individuals, if the provider is authorised by the Prudential Regulation Authority. As we approach the new tax year, if you have any savings that exceed this amount, consider moving it into a new ISA with a different provider to be sure it’s protected by the FSCS.