One less reason to worry about ISAs

People investing their money in an ISA for the long term will, understandably, be concerned about what happens if the bank or other institution managing the cash actually goes bust.

Providing you are within the limits of the Financial Services Compensation Scheme and have no more than £85,000 invested with any one institution, you'll get all your money back. But had you been able to leave the money where it was, you would have had potentially many more years of tax-free ISA returns coming your way.

Under current rules, you'd lose that opportunity, because you can't put compensation money from the FSCS back into an ISA. All you can do is start again with the current year's allowance -- £10,680 this year, of which up to half can be in cash, rising to £11,280 next year.

Top-up scheme

But that's all about to change, after the Treasury unveiled plans to allow affected people to resume from where they left off and top up their ISA savings by the amount lost.

The new plans, which will enter a consultation phase in the New Year, will allow savers to reinvest their cash in a new ISA with another provider, in addition to the usual annual limit -- so any compensation can effectively go right back from where it came, and carry on earning tax-free returns.

Similar rules will apply to share ISAs, too, and any compensation for losses suffered as a result of a collapse of the provider will be able to be reinvested, up to the full amount, in a new shares ISA.

Treasury Secretary Mark Hoban said the new rules will "enable investors whose ISAs are affected by the failure or default of a financial firm to continue to benefit from tax-advantaged savings", and that the rules "demonstrate the government's commitment to ensure that the ISA remains a secure, accessible and tax-advantaged saving product."

A good thing

The move, which the Tax Incentivised Savings Association described as "welcome", should hopefully provide an extra layer of confidence for the investing public, and that can only be a good thing.

So, be sure to use as much of your ISA allowance every year as you can -- there is now one less reason to worry (or at least, there will be when the new rules come into force!)

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