What a difference £3,000 can make over a decade

Savers over 50 who make use of their extra £3,000 ISA allowance, could see it make a real difference to their savings pot over the next decade, according to Fidelity International.

Fidelity, the UK's largest manager of ISAs, calculates that if someone over 50 invests the extra £3,000 in a UK equity fund growing at a rate of 7.5% per annum before charges, it could be worth £6,183 after ten years and £18,295 after 25. The extra allowance, which will be available to all ISA investors from 6th April next year, is worth even more if an investor plans to use it every year - growing to £45,624 after ten years and £219,229 after 25. That's on top of the returns from the current ISA allowance.

The same contributions invested in a UK corporate bond fund, paying an annual return of 5% per annum before charges could result in a pot of money worth almost £39,620 a decade later or £150,340 after 25 years.

In addition, Fidelity's analysis underlines just how important it is to understand that an ISA keeps the taxman at bay. Outside an ISA the taxman is going to take part of the investor's return, inside an ISA he is not. Just how much extra the investor will get back by sheltering savings in an ISA will depend upon the type of investment and their tax rate. In the corporate bond fund example above a higher rate taxpayer could increase their return by over 100% and a basic rate taxpayer by 37%. Anyone about to be subject to the new 50% income tax rate could see an extra 150% added. This means the basic rate taxpayer keeps an extra £20,400, the higher rate taxpayer £37,681 and the 50% payer £45,305 that would otherwise have simply been given to the taxman over the years.

Paul Kennedy, Director of tax wrapper & trust planning at Fidelity International, said: "The benefit of investing the extra allowance into an ISA is evident in our analysis. It can add significantly to an investors pot of money and can keep a substantial amount of money out of the taxman's grasp too. Tax increases seem almost inevitable in the next few years and this means every saver and investor in the country needs to seek the best possible tax advantages for their money now more than ever. The importance of the ISA as a tax-efficient savings vehicle will continue to grow and we would urge investors to make use of the extra allowance."

For more information, visit fidelity.co.uk