Savings and ISAs

ISAs are one of the most popular forms of personal saving in the UK. In 2015-16 according to government figures, there were 12.7 million of which 80% were Cash ISAs and 20% Stocks and Shares ISAs.

The total saved into ISAs now stand at around £250bn in Cash ISAs and £267bn in Stocks and Shares ISAs – so Stocks and Shares ISAs are substantially larger than Cash ISAs. This is not surprising given the tax advantages.

ISAs (“Individual Savings Accounts”) are tax free savings accounts. Money saved into an ISA is not taxed on interest or investment gains. Each year you get a new ISA allowance. In 2017-18 the maximum amount is £20,000.

There are two main types:

  1. Cash ISA: held in cash, is therefore totally risk free, and gets an interest rate currently around 0.5- 1%.
  2. Stocks and Shares ISA: savings are invested in stocks and shares (usually 'index tracking' funds covering a mixed bag to spread the risk). It’s more risky, because the stock market can obviously go down as well as up, but historically over the long term it has given a better rate of return than cash.

There is also a Help-to-Buy ISA which gives a 25% bonus on savings up to £3,000 towards a house purchase, and an Innovative ISA for people who want to lend to small companies.

There are numerous sources of information on the internet. We like http://www.moneysavingexpert.com/isas/

New for 2017-18: The Lifetime ISA:

This is a new ISA designed to encourage long term saving, a theme close to our hearts. You get a 25% bonus for savings put into a “LISA” subject to certain conditions. The headline points are (full details can be found at e.g. http://www.moneysavingexpert.com/savings/lifetime-ISAs) :

  • You have to be over 18 and not older than 40 to start a LISA.
  • The maximum saving is £4,000 a year, the maximum bonus £1,000.
  • The bonus is paid until age 50 which is a maximum of 32 years/£32,000 bonus.
  • It is paid annually in 2017/18, then monthly – and it counts as your money so you get any interest on it.
  • The bonus is paid only on contributions paid in – so interest earned on a Cash ISA or capital growth on a Stock and Shares LISAs doesn’t count towards calculating the bonus.
  • You can cash in the LISA at age 60 or at any time to buy a house; but if for any other reason there are penalties – you lose the bonus and pay a 5% penalty. We admit this is quite tough.

As at the beginning of the financial year very few providers were offering LIFAs and none as Cash LISAs. We hope this will change during the year and that we will be able to add this product to the options available to our savers.