Making the most of the new ISA allowance
Myfinances.co.uk's Kate Saines takes a look at the cash ISA market to produce a round-up of all the newly-released ISAs which lump-sum savers and regular depositors alike can take advantage of as the new tax year begins.
Now is a bad time to be a saver. Interest rates are rock bottom, many ISA savers are facing problems in their attempts to switch between products, even children's accounts are failing to come up with decent returns.
In fact it's such a dismal outlook that the start of this tax year was dubbed "Black Tuesday" by campaign group Save Our Savers, who were disgusted at the government's lack of incentives to encourage more people to store their cash.
But there is some good news. Along with the dawning of a new tax year, came an increased ISA allowance for us all. Now we can save £10,200 a year in the tax-free savings plans, of which £5,100 can go into a cash ISA.
This increased allowance means more of our money can earn tax-free interest, which may come as some consolation to the millions of savers who are feeling deflated about lack of decent returns.
Experts are urging people to make the most of this full ISA allowance and to deposit as much as possible in accounts as early as possible.
If you have a lump sum for the maximum amount which can now be stored in an ISA, you are being urged to deposit it today.
Barbara-Ann King, head of investments at Barclays Stockbrokers, says: "When it comes to investing in a tax efficient manner, it can be beneficial to take full advantage of investment ISAs early, as soon as the new tax year begins.
"By investing your ISA allowance at the start of the tax year, you can effectively get an extra year of tax-free growth compared to someone investing on the last day."
And the same advice applies for cash ISAs. Ben Mitchell, Clydesdale Bank's senior product manager for savings reckons people should start saving now.
"We're encouraging savers not to delay," he says, "and make the most of the new ISA allowance as soon as possible - every day they wait is costing them money."
But even those who do not have much spare cash and rely on making small contributions at regular - or even irregular - intervals, it's still worth starting your ISA as soon as possible.
Bonus Rate Products
It is becoming more and more accepted in the savings world that products with bonus rates are the way to reap the best returns.
M&S Money, for example, is now promoting its 'Flexi Cash ISA' which has a rate of 2.65 per cent, of which 1.25 per cent is offered as a bonus for 18 months.
Customers are allowed to transfer money from previous ISAs, the account requires a minimum deposit £100 and monthly payments of £25 minimum are allowed by direct debit.
And Saga has also launched a new ISA, the Postal Saver, which comes with a bonus. The rate of 2.6 per cent includes an 18-month bonus of one per cent bonus for customers receiving annual interest and 0.98 per cent for those earning the returns monthly.
Saga promises its rate will never go two per cent below the Bank of England base rate.
And it is an instant access account, allowing penalty-free withdrawals if required. However, it is exclusively for the over-50s and has a minimum investment of £500 - so not open to everyone.
Bonus rate accounts have come under fire for luring customers into a product which eventually pays low interest.
But, Kevin Mountford, head of banking at Moneysupermarket.com, says these types of account should not be ruled out.
"The average rate on a savings account would be a lot lower were it not for the bonus," he says. "The onus is obviously on the consumers to keep an eye on the rate and switch when the bonus period expires."
Fixed Rate ISAs
Higher interest rates are also more likely if you opt for a fixed rate ISA. The downside of these savings accounts is that you are locked into the product for the duration, but there are some which offer a degree of flexibility.
Leeds Building Society is expecting its latest offering to the ISA market to be popular for the 2010/2011 ISA season.
It's a five year deal, so you are committing for the long haul. But in return you will receive a 4.6 per cent rate and access to 25 % of your savings without penalty.
What's more, you only need £1 to open the account. However, you cannot make transfers from previous ISAs into this particular product.
M&S is also offering a rate of up to 3.25 per cent for savers opting for the fixed rate savings option within its cash ISA.
This rate is available for those investing for three years.
However there are other options. Customers can save into one or two-year versions and receive 2.5 per cent and 2.85 per cent interest respectively.
According to Moneynet.com, Coventry Building Society also launched a 3.25 per cent ISA on April 6th. This rate is fixed for a year, and does not allow access or transfers in.
Instant Access ISAs
What if you want to avoid bonus rates, need easy access to your savings but only have a little spare cash to deposit each month?
Well, never fear, there are even products on the market for you.
According to a survey by Clydesdale Bank, there is a misapprehension that savers can only deposit lump sums into ISAs.
Apparently, 22% of respondents thought ISAs only encouraged the wealthy to save and 20% did not realise you could make small and regular deposits into the tax-free accounts.
Ben Mitchell, of Clydesdale Bank, says this misconception probably emerged because of the last minute rush to deposit large sums of cash before the end of the tax year deadline.
Exploding this myth, however, is Principality Building Society which has just launched an account for the savers who like to make deposits little and often.
The 'regular saver ISA' pays four per cent interest.
Savers opening this account must deposit a minimum of £20 a month, and no more than £425, to receive the rate.
Principality asks this deposit is made by standing order and at the beginning of each month to maximise the interest they earn.
James Wright, marketing director of the building society, says: "We understand that not everyone can afford to invest a lump sum in April.
"The regular saver ISA allows you to make monthly deposits that will build up over the long term and the fixed-rate element means that there will be no rate surprises."
Also available is Santander's Flexible ISA Issue 2, paying 3.2 per cent. Launched on April 6th, it came as the bank's popular Flexible ISA - paying a market-leading 3.5 per cent - was taken off the market.
Although the new rate is not quite as attractive as its predecessor's, Santander promises interest will not fall below 3.2 per cent in the next year.
Plus, it guarantees to pay 2.7 per cent above the Bank of England base rate for the first 12 months. It allows instant access, provides penalty-free withdrawals, and requires just £1 to open.
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- isas
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