Benefits of ISAs trundled out as allowance season gets into full swing

News - Savings

Written by Ray Clancy

Wednesday, 10 March 2010 09:15

Basic rate UK taxpayers who have used their cash ISA allowance every year since launch are £3,000 better off, it is claimed. While higher rate taxpayers have saved over £5,500 in tax by using their cash ISA allowance.

With the battle for this year’s cash ISA pots heating up following the recent launch of Santander’s 3.5% Flexi ISA, and Barclays Golden ISA paying 3.1%, a report from experts at moneysupermarket.com says that using your ISA allowance is a no-brainer, particularly in an environment where rates are at an all time low and inflation remains a threat to savers’ real returns.

Basic rate taxpayers who have saved the full allowance in the average cash ISA every year since ISAs were first introduced in 1999 will be £2,900 better off than a saver who has not used their allowance and saved in a like for like basic easy access account instead, the website claims.

The difference is even more marked for higher-rate taxpayers. Those who have saved diligently within an ISA wrapper will have earned interest of £12,622 compared to someone who has saved in a basic easy access account who will have just over half of that amount, £7,030. Anyone invested fully into the top paying ISAs would have a total pot of over £46,000 as a result.

‘UK taxpayers who have managed to save in a cash ISA year after year since launch should be feeling pretty smug, and who can blame them. The tax free interest, particularly for higher tax rate payers is worth smiling about,’ said Kevin Mountford, head of banking at moneysupermarket.com.

‘Consumers that can afford to save should be looking at ISAs, without doubt. Although rates are currently low, we have started to see some attractive offerings from the likes of Santander and Nationwide and the benefits of these tax-efficient wrappers should not be overlooked,’ he added.

Savers should also make sure they remain vigilant, and check the rates of their existing ISAs. Many older ISA accounts will have dropped rates significantly so transferring funds is essential; in most cases funds are transferable to their new ISA without losing the tax free status, although you do need to adhere to the ISA transfer rules, he added.

The cash ISA allowance for under 50s is increasing to £5,100 from 6 April while the over 50s have benefited from this limit since 6 October.

Mean while the Fair Investment Company has a new funds service enabling customers to take control of their own ISAs and investments and get discounts of up to 100% on initial charges.

‘We want our customers to get a better deal for their money, so not only do we provide choice, value and service, but we have negotiated preferential terms with individual fund managers such as Invesco Perpetual, Schroders and Jupiter to save clients up to 100% on initial investment charges. This means it is cheaper to invest through us than directly through the fund managers and, you get acce