The new Personal Savings Allowance begins on April 6th 2016 and we're sure many of you have questioned whether ISAs are still worthwhile investing in. Read on for our straightforward guide to why ISAs as still important for you and your long term savings.
April 2016 and the introduction of the Personal Savings Allowance (PSA), you could save tax-free in an ISA or in some National Savings and Investment products. From 6
April 2016, the PSA will give you up to £1,000 of tax free interest as a basic rate taxpayer, no matter where your savings are held.
still offers special, additional tax benefits which normal savings accounts don't. Interest earned on an ISA is tax exempt up to the annual ISA Allowance for new deposits into an ISA, which is £15,240 for 2016/17. Interest earned on other savings accounts is not exempt from income tax like it is in an ISA, but it may be tax free once the PSA comes in. Your PSA is dependent on what your income tax status is and how much overall interest you earn on credit and savings balances. So having an ISA could be really handy, particularly if your savings grow significantly, or if your income grows in the future and you move up a tax band.
So, there's nothing quite like an ISA.
- All the interest you earn in an ISA is tax free, whatever your total credit balance or income
- With an ISA, you can save tax-free combined across both cash and stocks and shares and innovative ISAs up to £15,240 for 2016/2017
- Interest earned from an ISA, doesn't count towards your PSA because it's already tax-free
- Using your ISA allowance each year will steadily build your pot of tax-free savings
As of April 6
2016 you can still invest up to £15,240 tax free in an ISA. And with a cash ISA you'll have the freedom to replace any money you withdraw without it counting towards your annual ISA allowance in that year. You'll just need to make sure you replace the money in the same tax year as you withdraw it. But remember, any withdrawals from a fixed rate cash ISA are subject to a charge, although you can still replace any balance that you withdraw. This doesn't apply to a Junior ISA (which allows you to save up to £4,080 tax free in 2016/17 tax year) as you cannot withdraw funds from a Junior ISA until its maturity.
So which ISA?
- If you want to build tax-free savings and need the flexibility to withdraw money whenever you like, a Cash ISA Saver is a simple option
- Looking longer term? If you're happy to lock your money away for a couple of years, a Fixed Rate Cash ISA could offer a better rate. You can withdraw money within the fixed rate period, but you will incur a charge
Other ISAs products are available which are more risky than Cash ISAs, and the value of your investment may go up as well as down.
If you really can't decide it might be worth going into a branch and discussing your savings goals and plans with a branch partner; they can then help you to work out what you want and need from a savings account or ISA. You're not obliged to open an account with the bank you talk to and specifically at TSB, because our branch partners are service focussed rather than sales focussed, they'll be more than happy for you to go off and think about it before you decide whether you want to open a savings account or ISA.
So two ways to save tax-free. Your new Personal Savings Allowance and your ISA allowance, which are totally separate from each other. So if you're a basic rate taxpayer you could earn up to £1,000 interest tax-free in a savings or current account and at the same time save tax-free in a Cash ISA. Doesn't that sound good?