Financial year end is fast approaching in the UK and savers and investors only have a few days left to put their money into a tax-free savings account. But, given the chance to save money without losing a penny in tax, why are only a third of UK adults taking advantage of this savings scheme?
ISAs have been available to UK residents in one guise or another since 1999 and their latest incarnation offers savers the chance to put their money into a cash ISA or a stocks and shares ISA.
The benefit of these savings accounts is that any interest made on the money put into a cash ISA is tax-free and, similarly, the tax man will not take a penny from any capital growth and dividends received from investing in a stocks and shares ISA.
This savings threshold was increased from £3,600 to £5,100 for the current financial year and will rise again at the start of the new financial year to £5,340. Stocks and shares ISAs will also have their allowance increased so that savers can invest up to £10,680 over the course of the year.
And figures from price-comparison site moneysupermarket.com have shown that, had savers invested their annual maximum allowance into a cash ISA as opposed to a regular savings account then they could have made an extra £3,353.82 in interest.
So why are two-thirds of UK adults not reaping these rewards?
One reason is that a percentage of the population simply cannot afford to save money, and another reason may be because of some of the myths surrounding ISAs.
Time to bust those myths!
ISA interest rates are too low
It’s interesting to note that annual interest rates have almost halved over the last two years as they currently stand at around 3.5 per cent whereas they were 6.5 per cent just two years ago. But this doesn’t mean that they’re not worth bothering with!
The equivalent savings rate for s standard UK taxpayer is currently 2.8 per cent and so the ISA savings rate stacks up favorably against this even before the tax breaks are considered!
ISAs are not flexible
Some people make the assumption that once they put their money into an ISA then they will not be able to access it again for the rest of the year.
This is generally not the case and with a standard non-term deposit account savers can usually withdraw their money at any time. This is not something that is recommended though as tax benefits are lost on any capital that is withdrawn early.
In addition, some banks and building societies will have a minimum term attached to their accounts and so savers may find that they have to pay a penalty charge for withdrawing money early. The option to withdraw is still there though!
ISAs are restrictive
It is true that the list of investment options offered by an ISA account is not as varied as those offered outside of an ISA but that’s not to say that there is not a lot of choice.
For example, although alternative investments are closed off to ISA investors, if they want to invest on the London Stock Exchange then they can choose from the full list through a self-select ISA.
So, if you are an investor and have the chance to take advantage of a tax-free savings account then you should go for else you risk throwing away an easy return.
