Get up to date on ISAs

Get up to date on ISAs

Despite low interest rates, ISAs are still popular with savers, and with the financial year ending at the start of April, time is running out maximise your annual allowance. But it's no longer as simple as it used to be.

See also: How to pick a savings account

See also: Is Lifetime ISA an opportunity or a disaster for you?

Here's a quick guide to the rule changes, the increased amounts you can save, the effect of low interest rates, and new types of Individual Savings Accounts (ISAs).

Watch our money expert Andy Webb explain how Cash ISAs work

You can earn tax-free interest elsewhere

You can now earn £1,000 in interest every financial year outside of an ISA, and still not pay tax on it. This Personal Savings Allowance could mean you can get higher returns from current accounts and regular savings accounts.

The £1,000 allowance is for basic rate or non-tax payers and drops to £500 if you are a 40% 'higher rate' tax payer. Even so, with interest rates so low, it requires a huge amount of money to gain this much in interest.

The ISA allowance is growing

The ISA limit is £15,240 for this financial year, which ends on 5th April 2017. It'll then get even higher, jumping to £20,000.

You can take money out and put it back in

Some ISA providers now allow you to make a withdrawal from an ISA in a financial year, and put the same amount back in without it counting twice towards your annual allowance.

Check if your ISA allows this – it might mean you can put more in this year than you planned.

You should move old ISAs

With interest rates so low it's not just the new ISA you pay into which could have poor returns. All your old ISAs are very likely to have had their rates slashed, and you could easily be earning practically nothing on them.

If you want to move your old or current ISAs you need to find a provider that accepts transfers into ISAs and ask them to move the money. If you withdraw the money instead, the amount you can put back in will be restricted by the annual allowance.

Watch out too for penalties from your current ISA provider.

There's a third way for everyone to save

Traditionally you can have a Cash ISA, Stocks and Shares ISA, or a mix of the two. There's now an 'Innovative Finance ISA' which puts your cash into peer-to-peer lending.

As with Investment ISAs there's the chance of larger returns, but you could also lose some of your money. Importantly the companies offering these ISAs aren't covered by the Financial Services Compensation Scheme either, so there's no protection for your cash if they go bust. However, very few of these ISAs are available, so these might be ones for the future rather than right now.

First-time buyers can get a big bonus

Another new option is the Help to Buy ISA. It's open to any UK residents over 18 who have never owned a home. The government will give a 25% bonus on money saved up when a property is purchased. You can deposit £1,000 then £200 a month, up to a maximum of £12,000. From April 6th 2017 there will also be a Lifetime ISA which can be used for the same purpose, or kept until retirement.

If you've already opened a Cash ISA this year you won't be able to also have a Help to Buy ISA.

This article is provided by the Money Advice Service.

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