Take advantage of your Isa allowance now and enjoy the long-term rewards

11th February 2014

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UK taxpayers who have taken full advantage of the tax-free benefits of cash Isas every year since their introduction in April 1999 would be almost £5,000 richer than if the same amount had been invested in an easy access savings account

Research from comparison website Moneysupermarket.com shows that savers using the full Isa allowance, currently £5,760, could have earned a staggering £20,532 in interest since launch, leaving them with a total savings pot of £76,572.

By comparison, someone opting for a basic easy access savings account would have earned £15,669 in interest, missing out on an extra £4,862 for their savings pot.

And higher rate taxpayers would have lost out on a staggering £9,293 by not taking advantage of a tax free wrapper for their savings, accumulating £11,239 in an easy access account instead.

Kevin Mountford, head of banking at Moneysupermarket says:“If you are a taxpayer and have savings, then putting your money into an ISA should really be your priority ahead of an easy access account as the tax benefits make it a far more attractive option, effectively making every £1 work harder for you.

“With less than two months to go before the end of the tax year, anyone who has yet to utilise their tax free allowance should do so now. Over time, cash ISAs can give a decent return with no risk. The maximum cash ISA allowance is £5,760 for this tax year, and will increase to £5,940 from 6 April 6, so even if you have never saved into an ISA before, it is never too late, and investors should move their money before this year’s tax year ends on 5 April.”

But according to uSwitch, another comparison site, more than half, at 54%, of Brits plan to save into a cash Isa this tax year, down from 63% last year. Its analysis found that 11% of consumers blame low interest rates – claiming that it is not worth putting the money into one while a fifth, at 19% say that they cannot afford to save into an Isa.

While the base rate has remained at a historic low, but steady – the average cash Isa rate this year has fallen – down to 1.64% from 1.87% this time last year. These poor rates have clearly deterred consumers from investing in an ISA with 43% using their current account as their main way of saving asserts Jafar Hassan, personal finance expert at uSwitch. Nationwide’s Flex Direct Account pays 5% AER on savings, while Santander’s 1 2 3 Current Account offers up to 3% AER as well as 1% cashback on household bills paid by direct debit.

Stocks and shares ISAs are another option for savers who want to make the most of their money and protect it from the tax-man. Although riskier than cash Isas, returns tend to be greater over the longer-term. The combined tax allowance for Stocks and Shares and cash ISAs this tax year is £11,520, rising to £11,880 for the next year.

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