Make the most of your ISA allowance while you can!

Are you using your ISA allowances each tax year? 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. Each person has a £20,000 ISA allowance for the 2018/19 tax year.

Do I really need an ISA?

Whilst rates have improved in the cash ISA market, the best Variable rate is around 1.16% and the best 1 year fixed rate is around 1.45% so still not a great return on your money. 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 for its future benefits.

Stocks & Share ISA’s have enjoyed better returns over the last few years but at the point of writing this, they have taken a tumble. Investors who have a high equity content to their ISA they will see greater fluctuations. However don’t be fooled by the title as not all stocks and shares ISA’s carry high risk. Plenty offer much lower risk investments and even smoothed returns.

ISA’s should still form a key part of your savings portfolio, despite the current market place because it’s all about thinking long term. Whilst low interest rates mean most savers are below the £1,000 Personal Savings Limit (PSA) if interest rates rise in the future you could be above the limit and pay tax on your interest.  For example if you have £35,000 and get 3% p.a. this would result in £1,050 a year interest.

Rates are likely to rise again over the next few years and if you’re focused on building a long-term savings pot, at some stage you’ll hopefully have enough to earn more in interest than the PSA limit.

Think outside the box

It’s difficult to achieve decent returns in the Cash ISA market at present. I couldn’t find any that matched the current 3% rate of inflation. If interest rates could be on the rise you need to consider if locking into a fixed rate is the best option.

So, 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, 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. These investments are 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.

You need to consider your overall position and if you need access to your savings in the shorter term. 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 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 07767 308783 or claire@blakefinancialplanning.co.uk or www.blakefinancialplanning.co.uk.