Alex Robson, Products & Proposition Manager at Darlington Building Society, shares his tips for making the most of your ISA allowance before the tax year ends.
Whether you’re starting your journey to a stronger financial future, or you’re a seasoned saver, ISAs are a great way to help you reach your goals.
With the end of the tax year fast approaching, there’s still time to supercharge your savings with an ISA before the 5 April deadline. On 6 April a new tax year begins, and your ISA allowance will ‘reset’.
What is an ISA?
An Individual Savings Account (ISA) is a type of savings account which lets you save money up to the annual allowance set by the government (currently £20,000 per tax year). You don’t have to pay tax on any interest you earn.
There have been media reports in recent months suggesting that the government may reduce the ISA annual allowance from £20,000 at some point this year. So it’s more important than ever to make the most of your tax-free allowance.
There are four main types of ISAs:
Here are all the types of ISAs on offer across the market:
- Cash ISAs are the simplest and lowest risk ISAs and what you will find at most building societies. They offer certainty as your money stays with your savings provider. At the end of your set term, you will receive your saved funds plus any interest earned (for example, with a 1-year ISA, you would receive your savings plus interest at the end of the 1-year term).
- Stocks & Shares ISAs have a higher risk but can achieve a higher return as your funds are invested in the stock market. But returns are not guaranteed.
- Lifetime ISAs help people to save for their first home or support later life. They offer a long-term saving solution but are subject to penalties if the funds are accessed outside of these specific savings goals.
- Innovative Finance ISAs are a form of peer-to-peer financing. They can attract higher interest rates but are considered high-risk products, as they offer fewer guarantees with limited protections should the borrower default.
Who can save with an ISA?
Anybody who is 18 years old+ and a UK resident. Junior ISAs can be opened for those under 18 years old.
Can I get a joint ISA with my partner?
As the name suggests, ISAs are opened on an individual basis, so you cannot hold a joint ISA. However, you and your partner can each have your own ISA and save up £20,000 tax-free each (or £4,000 for a Lifetime ISA) each tax year.
What are the benefits of saving with an ISA?
- Maximise your savings – You won’t pay tax on any interest earned with an ISA, within the annual allowance.
- Transferable – You can transfer your ISA to another provider who may be offering a higher interest rate. You can also transfer your ISA allowance to your spouse if you were to pass away, so for that tax year your spouse wouldn’t be eligible to pay tax on your ISA funds.
- Flexible – You can find the right Cash ISA to suit your savings goals and habits. For example, you could use a fixed-term Cash ISA for longer-term goals. Or you may prefer the flexibility of being able to access your funds if needed – some Cash ISAs allow a number of penalty-free withdrawals each year.
