Savvy ISA savers £5k better off due to tax free benefits
Savvy UK taxpayers who have taken full advantage of the tax free benefits of cash ISAs every year since they were first introduced in April 1999 would be almost £5,000 better off than if the same amount had been invested in an easy access savings account, according to analysis by MoneySuperMarket.com.
The comparison website calculated how much money savers would have made over the past 15 years if they had been maximising the entire tax free benefits offered by a cash ISA. The research shows that savers utilising the full ISA allowance, which for the current tax year is £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. 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 said: “This year marks the 15th anniversary since the introduction of ISAs and those who have been savvy enough to take full advantage of the tax free benefits from day one will now have a very tidy sum which is safely out of the tax man’s reach. 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 April 6 2014, 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 5th April. Also consider existing ISA funds as the rates on these are likely to be far lower than on new accounts. However, you must choose an account which allows transfers of existing fund in and you must follow the correct ISA transfer procedure, otherwise your savings may lose its tax free status.
“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 a long term period. 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. With this type of product it’s important anyone considering investing their savings fully understands what is involved - if necessary seek independent financial advice.”