ISA Allowances

Finding a good deal for a financial product isn’t all that easy in the current climate, many accounts offer broadly similar interest rates and it can be difficult picking between them. This means that some people have chosen to save money away in savings accounts that aren’t earning them money, simply because there aren’t any other attractive alternatives.

When it comes to ISAs this decision not to change savings accounts or move money around could be detrimental in the long run. The simple reason is that each year every UK resident in the country has an ISA ‘allowance’. This ISA allowance runs out at the end of the financial year, so if you haven’t used all of it, the potential to put that money into an ISA is lost forever. Although, of course, with each new financial year you get a new allowance.

At the moment, because many ISAs (and cash ISAs in particular) are not offering particularly attractive rates, people think that they’re not a very good place to invest. If ISAs operated like a normal bank account this would make sense, why go through the hassle of changing account if the new account doesn’t offer better interest or potentially a worse rate than your savings account?

The reason for this is that when interest rates improve, the more money you have in your ISA the more interest it will be earning and you won’t have to pay tax on that interest. If you leave your money in a savings account, when the rates improve you’ll earn more interest, but you will have to pay tax on that interest, meaning that if you’re a basic rate tax payer you will lose one fifth of that money to the government.

Even if your ISA has an interest rate that’s not particularly good, then, you should still put money into it, and particularly at the moment before the end of the financial year. If you do not think you’re going to need to access your money for a little while, always try and put it into an ISA because the larger the ISA the more money you have saved away from the tax man.

The main challenge, then, is finding a good ISA, and if you can’t find one that has a brilliant rate (especially in comparison to the rates a few years ago) then go for a financial company like Legal & General who have a wide range of ISA products to choose from. After all, it’s your money that they’re looking after, so you deserve to be well treated in return for investing it with them.