Make the most of your ISA allowance

The end of the tax year is fast approaching which means now is the ideal time to make the most of your ISA allowance.


Compare ISAs


In the current 2019/2020 tax year, which ends on 5 April, you can invest up to £20,000 in an ISA. You won’t be able to carry this allowance over into the new tax year, so it’s a good idea to make the most of it now if you can.

You will, however, get a brand new ISA allowance of £20,000 from 6 April.

You can invest your whole allowance in cash or in stocks and shares, or you can split it and put some in cash and the remainder in stocks and shares. You can also invest your allowance in peer-to-peer loans, known as an Innovative Finance ISA.

New Single Access Savings Rate

As well as using up your annual ISA allowance, it’s also important to make sure you’re getting the best deal.

Many easy access savings accounts, including cash ISAs, come with a bonus that temporarily boosts the rate of interest you receive, typically for 12 months. Once the bonus ends, the interest rate often plummets, leaving many savers earning next to nothing on their money.

But under proposals by the Financial Conduct Authority (FCA), providers of easy access savings accounts and cash ISAs could soon be forced to offer a minimum interest rate across all of their accounts, known as a Single Access Savings Rate (SEAR).

This would mean that although providers would still be able to offer introductory rates for up to 12 months, after that time, customers would be moved on to the single interest rate. Banks would need a SEAR for their easy access cash savings accounts and a SEAR for their easy access cash ISAs. The rates would have to be published twice a year.

The FCA says the move, which should take effect from April 2021, will improve competition in the savings market and prevent banks from gradually reducing interest rates over time, helping longstanding customers to get a better deal. It will also make it easier for savers with old accounts to find how much they are earning on their savings.

However, some experts have raised concerns that because banks will be able to choose what rate to set the SEAR at, there is no way of knowing how competitive these rates will be.

Overall, savers may still be better off keeping an eye on the savings market and regularly shopping around for the best deal.

Transferring your ISA to a better deal

If you find a more competitive cash ISA, you can move money from an existing cash ISA to the new one, providing the new cash ISA accepts transfers in. To do this, ask your new provider for an ISA transfer form and it will arrange for your funds to be moved across. Avoid withdrawing the money yourself as you will lose the tax-free benefits.

If you are moving money from a previous tax year’s cash ISA, you can choose to transfer a portion of it, rather than the whole amount. But if you want to transfer money from the current year’s ISA, you will need to move the whole amount.

You can also move money from a cash ISA to a stocks and shares ISA or vice versa.

Are ISAs still worth it?

Since the introduction of the personal savings allowance in April 2016, all basic rate taxpayers (those who earn £50,000 or less) can earn £1,000 of savings interest a year without paying any tax on it. This applies to non-ISA accounts and current accounts.

All higher rate taxpayers (those who earn between £50,001 and £150,000) can earn £500 of savings interest a year, but additional rate taxpayers (those who earn over £150,000) have no allowance.

This means that the majority of savers do not have to pay tax on the interest they earn, and ISAs are no longer as attractive as they once were.

Despite this, it can still be worth saving into an ISA as any interest you earn from cash ISAs won’t count towards your personal savings allowance. ISAs can be particularly beneficial to those who have already used up their personal savings allowance or pay a higher rate of tax.

Top cash ISA options

If you’re looking for an easy access cash ISA, the Ford Money Flexible Cash ISA pays 1.27% AER (variable) and you can open the account with £1. Because it is a flexible ISA, you can replace any cash you withdraw from your ISA within the same tax year and it won’t count towards your annual ISA allowance.

Alternatively, if you are happy to lock up your funds for a year, the Ford Money Fixed Cash ISA pays 1.37% AER fixed for 12 months. You can open the account with £500 or more.

The Sainsbury’s Bank Cash ISA offers 1.21% AER (variable) on balances of £500 or more. You can open your account with £1, but for balances less than £500, the rate will be 0.50% AER (variable). There aren’t any restrictions with this account, so you’ll be able to access your money at any time.

If you’d prefer to tie up your funds for longer, the Paragon Bank Fixed Rate Cash ISA pays 1.50% AER fixed for three years or 1.60% for five years. You’ll need at least £500 to open the account.

Keep in mind if you withdraw money from a fixed rate cash ISA before the end of the term you may have to pay a penalty.

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