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The current tax year is rapidly drawing to a close, which means if you haven't yet utilised your £20,000 ISA allowance for 2018/19, you're running out of time! You wouldn't want to miss out on a year's worth of tax efficiency, so now's the time to take a look at the market and see how you can make the most of things.
Yes! Not only have ISA rates been increasing recently thanks to renewed competition from providers – we're in the middle of ISA season, after all – but these accounts should always form a key part of your savings portfolio. This is despite the Personal Savings Allowance (PSA) meaning that savers can earn interest of up to £1,000 tax-free each year, regardless of where the money's held, because with ISAs, it's all about thinking long term.
Being able to earn £1,000 in interest a year may seem an impossibility for the vast majority of savers – you'd need just over £66,500 in one of the top-paying easy access accounts just to meet that limit – but that may not be the case forever.
Rates have already been edging up in the last couple of years, and hopefully they'll continue to do so. This means that, if you're focused on building up a long-term savings pot, at one stage you'll hopefully have enough to earn more in interest than the PSA limit, particularly if you're securing a higher rate. Even now, if you locked your money away in the top-paying fixed rate bond (which comes from Gatehouse Bank paying 2.75% you'd only need £36,500 in savings before you breached the allowance, which may be a realistic prospect for those who have been building up a savings pot for years.
Then there's the fact that there's no telling how long PSA rules will last, so your tax-efficient savings may not stay that way forever. But, if you keep as much as you can in an ISA, your savings will remain tax-free for life, no matter what happens to savings rates or PSA rules in the future.
The downside is that ISAs tend to pay less than their standard counterparts, particularly where fixed rates are concerned. For example, the top-paying standard fixed rate bond currently pays 2.75% (as mentioned above) while the highest cash ISA rate
available is 2.30%, so there's a long way to go before ISAs can comfortably compete at rate level – which means it could be time to think outside the box.
What about a stocks & shares ISA? These accounts allow you to invest in the stock market, rather than keeping your funds in cash, which means there's the potential for far greater returns. However, this also ups the level of risk involved, so this route should only be considered by those who are comfortable with that and can afford to lose some of their savings should the market not perform as well as they'd hoped.
Having said that, investing in a stocks & shares ISA could be the perfect long-term solution – such an investment is recommended to be at least a three to five-year endeavour, so if you're viewing ISAs as a long-term route to securing your finances (as discussed above), it could be a way to go.
It's vital to stay on the ball with this kind of investment, which means you'll want to review your savings frequently – at least once a year – to ensure you're continuing to invest in the right places. Above all, make sure you're happy with investing rather than saving, and if you're thinking of going down this route, don't wait too long – you want to make the most of the current tax year, after all!
Find out more about stocks & shares ISAs to see if they're worth the risk
Want to stick with the safety of cash? Compare the top cash ISA rates to make the most of your £20,000 allowance
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