Getting excited about Individual Savings Accounts (Isas) usually only happens once a year, when the chancellor’s Budget changes come into effect in April.
But we've been given another chance to get all animated about our finances now the changes to Isas which were announced earlier this year have come into effect.
This is big news, but to put it into context, it’s worth reviewing what’s happened since George Osborne stood up in Parliament to deliver the budget
In April, the Isa allowance rose to £11,800, up from £11,520. The increased limit wasn’t the only good news for savvy savers.
On 1 July the limit rose again to £15,000, when the 'New' Individual Savings Account (Nisa) was introduced.
Now, all of your allowance can be placed in a cash Isa for the first time. Previously you could only put half of the total allowance in the cash part, with the remainder (or all) in a stocks and shares Isa.
Providers have just started to reveal their new rates, but here’s an indication of how you could benefit from placing your hard-earned cash in a Nisa.
If you’re a basic-rate taxpayer with a spare £15,000 to put in a cash Nisa paying 2.5%, after a year you’d have accrued £375 on top of your original savings. This may not sound great, but until interest rates rise it's not a bad return in the grand scheme of things. To put it in perspective, if you put the same amount in a standard easy-access savings account you’d be £75 worse off after a year – once the tax has been paid.
Flexible movement of your money
As of 1 July you are now be able to move money from a stocks and shares Isa into a cash Nisa for the first time.
So while you may think that having £15,000 available to put in a cash Nisa is a pipe dream, it might be more attainable than you think. You could have savings kicking around in other accounts that you can now transfer.
It’s amazing that it took so long for someone in power to take this big step, given that Isas were introduced back in the late 1990s as a carrot to encourage people to save for their future, including their retirement
Keeping stocks and shares has traditionally been seen as a risky move the closer you get to giving up work – as a sudden drop in the stock markets could wipe out much, if not all, of the equity you’ve built up.
Invariably, investors cash in an increasing proportion of their stocks and shares Isas as they near retirement, and move it into safer options such as savings or bonds. But it’s a bit of a kick in the teeth to lose out on the tax benefits by moving the money out of an Isa.
So, being able to switch from stocks and shares Nisas to cash Nisas without losing the all-important tax wrapper is a welcome move. And as transfers between Nisas aren’t included in your annual allowance, you're free to move what you have tied up in tax-free stocks and shares investments - and add to it - within the limits.
Kids win too
It’s not just us oldies who can benefit from tax-free savings.
Parents or legal guardians can save and invest for their children – up to the age of 18 – in a junior Isa. This initiative was introduced fairly recently, in November 2011.
The junior Isa allowance has now also been raised to £4,000 from £3,840. Given that no tax is paid on interest or investment gains, this is an increasingly popular way to get enough money together for your kids to have ready when they start university, driving lessons, or even a gap year or two.
So, what’s next?
Ok, interest rates on Isas and other savings in general are pretty meagre right now.
But the Bank of England predicts rates will start moving up within the foreseeable future, so it makes sense to take advantage of your Nisa allowance, and remember to check out the competition.
It’s not difficult to switch Isas, and it might make total sense if you can earn more as a result. If in any doubt, seek the advice of an independent financial adviser.