"Let me tell you how it will be… there’s one for you, nineteen for me. ‘Cause I’m the taxman…"
The Beatles may have perfectly evaluated the reasons why the taxman became a figure of nationwide hatred back in the 1960s – but in the new Millennium it appears we’re finally turning the tables on our financial arch-nemesis.
That is thanks to the emergence of individual savings accounts, or, as they are more commonly known, ISAs.
ISAs allow savers to avoid income and capital gains tax on their savings – and their value has surged in recent years. In fact, since April 2000, their total value has risen seven-fold, from £29bn to a whopping £208bn.
Remarkably, this means we now collectively hold almost as much in ISAs as we owe on non-mortgage debt, such as credit cards and loans – that figure stands at £216bn.
The reasons for this swell in popularity are straightforward. In the past few years there has been a surge of fresh investment, thanks in large measure to some very attractive rates and the obvious tax advantages of using an ISA each year.
According to the savings comparison tool at moneysupermarket.com, there are 11 ISA accounts offering 6%-plus in interest. The current market leader for National Savings & Investments, whose Direct ISA offers 6.3% AER, with a minimum deposit of £1,000. Second comes National Counties Building Society, which offers its Guaranteed Mini Cash ISA at 6.26% AER on balances as low as £1.
However, if you want to see faster returns for your investment I’d recommend the ING Direct Cash ISA, which offers a rate of 6% AER.
The key to this deal is that interest is paid on the last day of every month – most ISAs only pay out on a yearly basis. Withdrawals can also be made without notice or a penalty, making this a very attractive deal for those who want to maintain easy access to their cash.
The laws on the amount that can be invested into an ISA will change next year. Currently you can pay £3,000 each year into a mini-cash ISA, £4,000 in a stocks and shares mini-cash ISA and £7,000 in a maxi-cash ISA.
As of April 2008, this will change to £3,600 in a cash ISA and up to £7,200 in a stocks and shares ISA, within a higher overall annual savings limit of £7,200.
Though many like to wait until the new tax year to sign up for an ISA, my advice is that you should capitalise on these attractive rates as soon as possible – and make sure your money is working for no-one but you.
DISCLAIMER: Please note that any rates or deals mentioned in this article applied at the time of writing and may no longer be available/applicable today.