- By Malcolm Anderson
- Published 12/30/2011
Where and how to store your money has become an increasingly pertinent and frequently asked question. With understandable concern surrounding personal finance on a seemingly inexorable rise, more people are asking and wondering where they can see the biggest return on, and reap the rewards of, their often substantial investment. One possible answer is to take advantage of the Individual Savings Account, make the most of the ISA allowance, and enjoy the benefits that come from wrapping your savings in a tax efficient wrapper.
Opening up and taking out one of the many available ISA accounts means the only person able to touch your savings is you. While basic rate taxpayers will see the government take a 20 per cent slice from the interest generated by the amount in their standard accounts, high rate taxpayers will wave goodbye to 40 per cent of their interest earnings and additional rate taxpayers 50 per cent, savings that sit in an ISA cannot be touched by the tax man. All of the interest accrued by the original deposit stays in the account, meaning the owner has access to both the initial investment and all of the interest earned from it.
Therefore, when searching for a new ISA, it makes both sound and prudent financial sense to find the one that offers the best interest rate. Some accounts offer interest at a minimum rate of over two per cent. Others, however, will offer new customers well over three per cent in an attempt to persuade people to save with them. To match the returns of a three per cent ISA, a customer with a regular account would have to identify an alternative with an interest rate of 3.75 per cent. It is worth, looking a little deeper beyond the initial offers and taking the care to read and research the small print. For example, a minimum investment maybe required and, for those that seem to offer the best interest rates, this initial investment deposit is often significantly higher. As every savvy investor knows, the value of investments can go down as well as up and you may get back less than you invested.
Another factor worth taking into consideration is the number of introductory offers available and designed to tempt new customers to the bank or building society in question. Some investors take advantage of these welcome bonuses and then they move their money to a more consistently high interest rate supplier at the end of the introductory period.
Transferring your ISA
Though moving money and savings between ISAs is more complex than switching standard accounts. It is still relatively trouble free and has become much easer for investors seeking to make the most of their money. Your new bank should do most of the hard work on your behalf, but do bear the following points in mind:
Think carefully before you withdraw money from your ISA because you will immediately lose all the tax benefit for the money withdrawn
Always speak to the new provider and fill out a transfer form. This will usually include a pre-populated instruction you can send to your existing ISA company. The new provider should then coordinate the transfer on your behalf; including moving the money over for you, keeping your tax benefits intact.
Banks have agreed to a 15 working day guideline for the transfers; if it goes much over this time it’s worth complaining to the ISA provider.
Remember you need to be mindful of the eligibility to invest in an ISA will depend on your individual circumstances, and all tax rules may change in the future.
Quite simply, if you have any savings or investments, they should be in an ISA. All being well you can sit back, relax and let your money work for you.
About the Author: Malcolm Anderson: independent journalist writing about ISA accounts.