Make the most of your ISA allowance while you can!

The current tax year is rapidly drawing to a close, which means if you haven’t yet utilised your ISA allowance for 2016/17, you could be 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 your savings and move your money within the tax efficient wrapper.

Do I really need an ISA?

The cash ISA market isn’t exactly surging ahead at the moment with variable rates at 0.50%p.a. or below and fixed rates under 1% p.a. So there may seem to be better rates available outside of the ISA wrapper. however you need to consider the preservation of the allowance for each tax year and its benefits for the future.

Longer term (stocks & share) ISA’s have been enjoying far better returns recently particularly where investors have a high equity content to their ISA. However don’t be fooled by the title as not all stocks and shares ISA’s carry high risk. There are plenty offering much lower risk investments and even smoothed returns.

ISA accounts should still form a key part of your savings portfolio, despite the current market place because it’s all about thinking long term. Being able to earn £1,000 in interest a year to max out on the PSA limit may seem an impossibility for the vast majority of savers, particularly with rates so low, you’d need to have £100,000 in one of the top-paying easy access accounts just to meet that limit but that may not be the case forever.

Rates will hopefully rise at some point in the next few years and if you’re focused on building a long-term savings pot, at one stage you’ll hopefully have enough in it to earn more in interest than the Personal Savings Account limit, particularly if you’re securing a higher interest rate. If you were able to find an account paying 4%, for example, you’d only need £25,000 in savings before you breached the allowance.

There’s also the fact that we don’t know how long PSA rules will last, so your tax-efficient savings may not stay that way forever. 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.

Think outside the box

It’s difficult to achieve decent returns in the Cash ISA market at present. As it stands, there’s only one long-term ISA available that matches the current rate of inflation, so you may want to lock into it before the current tax year ends on 5 April to keep your savings as protected as possible, 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 term although you can still have access and choose to opt for an income if desired.
Indeed, the current low interest rate environment means many are considering taking this route, with the potential for returns being the key incentive.

You need to consider your overall position with your savings and if you need access to them in the shorter term and if you have funds that could be invested for a longer term then these types of ISA’s could offer a boost for all or just part of your savings. Not all stocks and share ISA’s carry a high degree of risk and some will even offer an indication of expected returns on a quarterly basis. However I would always recommend that you take advice on the best course of action for you as an individual.

If you need help or advice with your Investment planning please contact me Claire Blake on 07704311021