ISAs - Is it time to give your finances a spring clean?
March 2024
ISAs - is it time to give your finances a spring clean?
ISAs* are fantastic products for saving. They shield your money from tax, meaning you can save up to £20,000 each tax year and the interest is paid tax-free.
However, only a very small number of people use all of their ISA allowance each year, meaning they are potentially missing out on the opportunity to maximise the tax-free benefit of these products. In fact, the latest available research suggests that less than half (48%) of people with £50,000 in savings actually used all their ISA allowance during the 2020/2021 tax year1.
There’s no better time to take a look at where you keep your savings, and consider moving your money into an ISA.
Are you making the most of tax-free savings?
Other types of savings accounts certainly have their place, but if part of your annual ISA allowance is unused you might want to think about moving some funds into these tax efficient products. If you have savings in accounts that aren't tax-free, then some of the interest you earn could be taxed, depending on your Personal Savings Allowance. Whereas all the interest you earn from your ISA account is tax-free. Find out more about tax-free savings allowance on the government website.
Tax efficient saving with ISAs
Each year, you’re allowed to contribute up to £20,000 tax-free to an ISA. It’s this tax-free interest element which makes ISAs so attractive – unlike other savings accounts, any interest you earn on the money you invest in a cash ISA is not taxable.
However, your annual ISA allowance resets at the start of every new tax year on 6 April. So, once the tax year ends, you’ll lose what you haven’t used! Making sure you’ve used as much of your annual allowance as possible before the end of the tax year could help you to really reap the tax efficient benefits of these products across more of your savings.
For example, if you were to use up your full £20,000 ISA allowance before the end of the current tax year, you could then add a further £20,000 from your new allowance from 6 April, allowing you to enjoy the benefits of interest on a combined £40,000 of savings – all tax-free. You also don’t have to leave your ISA savings in different accounts – instead, depending on the type of ISA product, you can undertake what is called an ISA transfer to move funds from previous tax years into new accounts without affecting your current ISA allowance.
So, if you've not used all your ISA allowance, what simple steps should you first consider to ensure your money is working as hard for you as it can?
Consider all your savings
If you have savings in an old ISA or another type of savings account, or perhaps you’re using a current account to hold some of your funds, it might be worth considering transferring the money into a new ISA to make the most of the latest interest rates. It doesn’t matter how small the amount is either – you can open a cash ISA with Coventry Building Society with as little as £1.
Brush up on your ISA knowledge
If you’re looking to make the most of your allowance, think about building your knowledge of the different options available.
Rates are higher than they were a few years ago, which has meant cash ISAs are increasingly attractive. Average rates for these products have risen from 0.51% between February 2021 to February 2022 to 3.73% over the same period to February 20243.
The ISA market offers a range of options you can consider depending on your circumstances. Along with standard cash ISAs, the Lifetime ISA helps those saving for their first home or later life and for young savers a product such as a Junior ISA (JISA). A JISA can be a fantastic way to start building a nest egg for your child's future. They're available with an annual allowance of £9,000 and a parent or guardian can explore our current product option.
The end of every tax year presents a great opportunity to review your savings and ensure that your money is working as hard for you as possible. A little time spent giving your finances a spring clean now will set you up nicely to save over the coming months.
References
* ISAs are a savings scheme initiated by the Government and are subject to change by them. For example the favourable tax treatment may not be maintained.
- Fool.co.uk - How many brits use their full annual ISA allowance
- CityAM.com - More than 1tn languishing in low interest savings accounts as brits urged to shop around
- Moneyfactsgroup.co.uk - Cash ISA returns beat Stocks & Shares ISA growth
Related articles:
What's new in the world of ISAs?
Take a look at the changes which are being introduced to ISAs.
ISAs - is it time to give your finances a spring clean?
ISAs* are fantastic products for saving. They shield your money from tax, meaning you can save up to £20,000 each tax year and the interest is paid tax-free.
However, only a very small number of people use all of their ISA allowance each year, meaning they are potentially missing out on the opportunity to maximise the tax-free benefit of these products. In fact, the latest available research suggests that less than half (48%) of people with £50,000 in savings actually used all their ISA allowance during the 2020/2021 tax year1.
There’s no better time to take a look at where you keep your savings, and consider moving your money into an ISA.
Are you making the most of tax-free savings?
Other types of savings accounts certainly have their place, but if part of your annual ISA allowance is unused you might want to think about moving some funds into these tax efficient products. If you have savings in accounts that aren't tax-free, then some of the interest you earn could be taxed, depending on your Personal Savings Allowance. Whereas all the interest you earn from your ISA account is tax-free. Find out more about tax-free savings allowance on the government website.
Tax efficient saving with ISAs
Each year, you’re allowed to contribute up to £20,000 tax-free to an ISA. It’s this tax-free interest element which makes ISAs so attractive – unlike other savings accounts, any interest you earn on the money you invest in a cash ISA is not taxable.
However, your annual ISA allowance resets at the start of every new tax year on 6 April. So, once the tax year ends, you’ll lose what you haven’t used! Making sure you’ve used as much of your annual allowance as possible before the end of the tax year could help you to really reap the tax efficient benefits of these products across more of your savings.
For example, if you were to use up your full £20,000 ISA allowance before the end of the current tax year, you could then add a further £20,000 from your new allowance from 6 April, allowing you to enjoy the benefits of interest on a combined £40,000 of savings – all tax-free. You also don’t have to leave your ISA savings in different accounts – instead, depending on the type of ISA product, you can undertake what is called an ISA transfer to move funds from previous tax years into new accounts without affecting your current ISA allowance.
So, if you've not used all your ISA allowance, what simple steps should you first consider to ensure your money is working as hard for you as it can?
Consider all your savings
Brush up on your ISA knowledge
If you’re looking to make the most of your allowance, think about building your knowledge of the different options available.
Rates are higher than they were a few years ago, which has meant cash ISAs are increasingly attractive. Average rates for these products have risen from 0.51% between February 2021 to February 2022 to 3.73% over the same period to February 20243.
The ISA market offers a range of options you can consider depending on your circumstances. Along with standard cash ISAs, the Lifetime ISA helps those saving for their first home or later life and for young savers a product such as a Junior ISA (JISA). A JISA can be a fantastic way to start building a nest egg for your child’s future. They’re available with an annual allowance of £9,000 and a parent or guardian can explore our current product option.
The end of every tax year presents a great opportunity to review your savings and ensure that your money is working as hard for you as possible. A little time spent giving your finances a spring clean now will set you up nicely to save over the coming months.
References
* ISAs are a savings scheme initiated by the Government and are subject to change by them. For example the favourable tax treatment may not be maintained.
- Fool.co.uk - How many brits use their full annual ISA allowance
- CityAM.com - More than 1tn languishing in low interest savings accounts as brits urged to shop around
- Moneyfactsgroup.co.uk - Cash ISA returns beat Stocks & Shares ISA growth
Related articles:
What's new in the world of ISAs?
Take a look at the changes which are being introduced to ISAs.
