Urgent: ISA Deadline Approaching

As the end of the financial year looms, don’t be fooled into thinking it’s something only big companies, accountants or the self-employed need to worry about. April 5th also heralds the end of ISA allowances for the year. If you have any money knocking about, you should seriously consider looking at one.

Finding the right ISA can be confusing - but this quick guide should help.

Finding the right ISA can be confusing – but this quick guide should help.

What is an ISA?

An ISA (Individual Savings Account) is best thought of just like a savings account – put money in and gain interest on that money for as long as it is in the account. Where ISAs are different is that the interest you earn is completely tax free. There is a limit to how much you can pay into an ISA each year, hence the reason you should be conscious of the deadline, once it’s passed, your allowance for that year is gone and can’t be used. The allowance for each adult per year is £11,280, but only £5,640 of that can be used for a cash ISA – which essentially is the same as a savings account. There is also the option to take out a stocks and shares ISA, where the limit is any amount up to £11,280 in, provided you haven’t already used any of the cash allowance for that year. An example will probably help make this more simple. If John puts £5,640 into a cash ISA, he cannot then put any more money into a cash ISA in that financial year. He can though put another £5,640 into a stocks and shares ISA. If he decides not to put anything into a cash ISA, he could put the full £11,280 into a stocks and shares ISA. Any existing balance in an ISA can be transferred into a new ISA without counting towards the limit, as long as the provider allows transfers in.

Why not set aside an hour or so over this Easter weekend to decide if you should be getting some money in before the deadline.

Who is it for?

Anyone can open an ISA, there are even Junior  ISAs available. If you have debts, you probably want to think about paying them off before saving, but for everyone else ISAs are worth looking at, especially if you pay a high rate of taxes. Whilst it will never be the best rate of return you could get on your money, as far as safe and secure money in a bank account it is the best option for most people.

The best Buys

To help out, I’ve compiled some of the best options around at the moment. Even if you don’t have any money to put in, if you have an existing ISA, it’s worth looking to see if you could be getting a better rate by switching. Many offer introductory rates of interest for a year, so make the most of it then move on after the years up – don’t leave your savings in an account that’s not paying you what you could be getting. I’m only covering cash ISA’s, as stocks and shares vary widely, are hard to compare and depend heavily upon personal preference.

Easy Access

If you might need access to your money, then an easy access ISA is for you. Here are the best ones available at the moment:

logo-santander1The Santander Direct ISA Saver: 2.5% for 12 months – Online and telephone access, and allows transfers from previous ISA’s. There is a minimum deposit of £2,500 though. Application deadline: 4th April 11:59pm (or in Branch 5th April till branch closing)

Tesco Bank Instant Access Cash ISA: 2.3% (which includes a 0.3% bonus for the first year) – online and telephone access. Doesn’t allow transfers in from existing ISA’s, but has a minimum deposit of only £1. Application deadline: 5th April 11:30pm.


Cheshire Building Society ThumbnailCheshire Building Society ISA Saver: 
2.3% (including a 1.8% bonus until Oct 2014). Allows transfers in, and has a lower minimum deposit of £1,000. The real downside here is that access is by post only, so if you plan to use it often, or need quick access, bear that in mind. Application deadline: 3rd April 5pm.

Fixed-Term

 

 

If you don’t need access to your money for the foreseeable future, than you can often get a better rate by locking away your cash. With these options, if you withdraw cash during the fixed period a penalty will be imposed upon the interest you earn, negating the benefit of having locked it away at all, so think carefully about how likely it is you’ll need to get at it. Make sure you understand all the terms and conditions before you commit. Here are some of the best options:

1 Year: Brittania offer 2.35% to existing co-op customers, other than that Skipton have 2.1% – but why would you bother when you can  get a better rate with an instant access.

2 Years: Santander Major ISA: 2.8% (3% for 123 account holders). Allows transfers in, and just a £1 limit.

3 Years: Halifax ISA Saver Fixed: 3% with a minimum deposit of £500. Allows transfers in.

Summary

As an example, putting £5,640 in an ISA at 2.5% will earn you about £141 interest over the course of 12 months, so it is well worth thinking about. Far better than putting it under your mattress and, providing you’re not in Cyprus, probably a little safer too. Don’t forget to check when bonus or introductory rates end, diarise it, and switch to maximise earnings.

A word of warning about savings: if you have credit card debt or loans, it’s almost certain you’ll be better off paying these off before saving large quantities of money – think about if an ISA is right for you. Also bear in mind that as good as 2.5% might sound, given that current inflation rates in the UK are at 2.8%, your money is actually declining in real terms, rather than gaining – so is it actually a good option? It’s certainly better than leaving it languishing in a current account, as it diminishes in value to a far lesser extent, but investing it in other ways is well worth thinking about when you consider this.

 

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