Today marks the first anniversary of the NISA, which heralded the biggest change to the good old Individual Savings Account since its launch. The question is, have you made the most of the new savings opportunity?
Essentially, the new ISA offered savers the chance to squirrel away up to £15,000 entirely tax-free (this limit has since been raised for the 2015/16 tax year), and allowed savers to invest the full amount in cash should they wish. It also removed some restrictions and allowed savings held in a stocks & shares ISA to be transferred to cash and vice versa, effectively merging the two and offering additional flexibility.
The chance to keep up to £15,000 out of the taxman's reach was understandably too good an opportunity for many people to pass up, with figures from Fidelity Personal Investing showing that 28% of those with an ISA who were aware of the NISA limit said it encouraged them to save more, particularly those who liked investing in stocks & shares – and these are the very people who would have benefited most.
According to Fidelity's calculations, if a saver had invested the full NISA allowance of £15,000 on 1 July 2014 into the FTSE All Share Index, they'd have amassed £16,328.43 by 29 May 2015 – a return of 8.85%. Alternatively, if they'd put it into a typical savings account, they'd be left with £15,024.09, a return of just 0.16%. This equates to a difference of £1,304.34 in a single year, so could it be time to consider a stocks & shares ISA to make the most of your ISA savings?
"The NISA has given investors the ability to invest more money than before in a broader range of investments with the flexibility to move between cash and stocks & shares," said Maike Currie, associate investment director at Fidelity Personal Investing. "While most of us will find it challenging to make use of the full NISA allowance, £15,240 this tax year, the beauty of compounding means that even the smallest investments in an ISA can build up over time."
Investing in the stock market should always be seen as a longer-term undertaking – and one that comes with additional risks – but the difference between putting your money to work and leaving it in cash is clear. Just make sure to carefully consider the options before taking out a stocks & shares ISA, and always be sure that you're comfortable with an extra element of risk, but if you are, the returns could be worth it!
But, that's not to say that you can't find half-decent returns from cash ISAs – you just need to know where to look. Average rates may be lacklustre, particularly for those seeking easy access to their cash, but by checking out the top accounts you could still find some great deals. Don't always think you have to go for the big names, either – challenger banks are coming to the fore and are dominating the best buy charts, so remember, loyalty to your bank doesn't pay!
For example, the top-paying variable rate ISA comes from Al Rayan Bank, offering 2.02% AER on the provision that you give 120 days' notice to access your cash. The same provider tops the charts in the one-year fixed sector, with its 12-month ISA paying 1.90%, while at the other end of the scale you can get a five-year ISA from State Bank of India that pays 2.50%.
They may not offer the same kinds of returns as stocks & shares, but for zero risk, you can't go wrong! Check out our best buys to find out more, and see if you can make the most of your ISA in the year ahead.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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