Every year, we pledge to use our tax-free ISA allowance when the new tax year begins — and every year, most of us forget or just can’t afford to do so.
With two months to go until the end of the current tax year, more than a third of Britons haven’t yet used their £5,640 allowance, according to a Moneysupermarket poll.
But if you have even £100 lying nearly-forgotten in a saving account or unneeded in a current account, now is the time to move it in to a cash ISA. Not, sadly, because the rates are so hot, in fact, the deals on offer aren’t nearly as good as they usually are at this time of year, but because of significant tax benefits. Interest rates are low because the banks are getting cheap funding from a Government lending scheme, meaning they’re not trying to out-bid each other for our savings.
However, ISA allowances work on a “use it or lose it” scale. So, as Kevin Mountford, head of banking at MoneySupermarket.com puts it, “People who are in a position to be able to save at the moment need to do everything in their power to maximise their savings pots. If they are taxpayers, they should use as much of their ISA allowance as they can afford to make sure that the interest they earn on their hard-earned savings is not unnecessarily lost to taxation.”
If you have savings from previous years in old bank accounts, moving it to an ISA is likely to trigger a better rate of interest, and the interest you earn will also be protected from the taxman. Also, if you have savings in ISAs you have opened in previous years, check the rates - many have “bonus” deals that run out after a year, when the interest rate slumps to one per cent or below.
The top rates include 2.8 per cent interest from Coventry Building Society, although you have to give 60 days notice to withdraw funds. Or Cheshire Building Society is paying out 2.5 per cent on its instant access ISA Saver 1. But if you’re moving ISAs from previous years into a new deal, be sure to follow the official switching rules - ask your bank for an ISA transfer, otherwise if you withdraw and try to re-invest them, you will discover your savings will lose their tax-free status.