Don’t throw away thousands of pounds of interest to the tax man
Savers who have used their full cash ISA allowance every year since their introduction in 1999 would be £3,800 richer than if they had just put the same amount away in an easy access savings account, according to analysis by MoneySupermarket.com.
Basic tax rate payers making use of the tax free benefits offered by a cash ISA from the day they were launched twelve years ago would have earned a whopping £16,456.18 in interest over this time period. In comparison, opting for a basic easy access savings account would have earned them £12,623.48 in interest so a total of £3,832.71 would have been wasted. Higher rate taxpayers would have missed out on an additional £7,372.45 by not taking advantage of using a tax free wrapper for their savings.
Kevin Mountford, head of banking at MoneySupermarket said: "Using your ISA allowance should be a priority for anyone with a savings pot in order to take advantage of the valuable tax free benefits offered. All savers who pay income tax and don't use an ISA for their savings are throwing money to the tax man and could give their savings pot an additional boost. Over time, a cash ISA can give a decent return with no risk and is the first port of call for savers looking to leave their savings for the longer term."
"Where possible, savers should look to make the most of their cash ISA allowance, and ensure any existing savings held elsewhere are moved into an ISA. The maximum cash ISA allowance is £5,340 for this tax year, and will increase to £5,640 from April 6 2013. If you already have an older ISA make sure you are aware of the current rate you are on, and switch to a better deal if necessary - if you don't know where to start, use a comparison site like MoneySupermarket to compare rates and apply. New ISA transfer rules came into force at the end of 2010 to help speed up the process. Savers should therefore check the rate, and act now if they find their existing savings are offering low returns.
"As well as being able to use the cash ISA element, savers can also invest in stocks and shares ISAs giving another option for savers to protect their money from taxes. They are more risky than cash ISAs but the returns tend to be greater over the longer term. With these types of products it's important you fully understand them and if necessary seek independent advice."