What is the point of ISAS when interest rates are so low?

The value of ISAS, is that any interest earned is tax free, but what is the point when top interest rates are 0.5%?

What is the point of ISAS?

This is a question you might be asking if you have a cash ISA.

The best interest rate currently available on an easy-access cash ISA is 0.54 per cent, which is below the inflation rate of 2.1 per cent. This means any money saved in a cash ISA is essentially losing value. The value of ISAS is that any interest earned is tax free. However, as basic-rate taxpayers can earn £1,000 a year free of tax, this benefit is academic to most. Investment ISAS are more valuable to Britons looking for a place to grow long-term savings.

The stock market rout during the lockdown in 2020 may have concerned savers, but markets have picked up again significantly during 2021.

However, there are so many choices available within Investment ISAS, you really need to investigate much further, to see if this investment option is suitable for your short and long term plans.

ISAS important for retirement planning

Investment ISAS are where the tax-free benefits of ISAS come into their own.

In the UK, capital gains tax of up to 20 per cent is applied on profits above £12,000 each tax year when selling investments. But holdings sold within an ISA wrapper are not subject to any tax.

ISAS can therefore provide a good way to make money on savings and should be an important element in retirement planning.

Like all Britons, pensioners can receive a retirement income of £12,570 a year tax-free.

Any income above this will be subject to income tax and national insurance.to minimise tax, it could therefore make sense to take some income from ISAS in retirement.

Choosing between an ISA and a pension

The downside to saving for retirement through an ISA is that, unlike saving through a pension, you will not receive tax relief upfront. In the UK, tax relief of at least

20 per cent is available when saving through a pension product. So, for every £1 saved into a pension, the Government top-up means the actual cost is only 80p (For a higher rate taxpayer the actual cost is 60p).

Taking advice

The world of ISAS is a complete minefield for everyone.the tax-free saving and tax-free income aspects of ISAS is a huge benefit for every ISA holder, however this needs balancing with the suitability of a ISA for your financial circumstances, both now and in the future.

At Brian Mole IFA we offer a detailed analysis of your financial position, needs and future aspirations at an appointment to suit you. By talking face to face to an independent financial adviser, you will understand far more about how an ISA could be suitable for your own situation.

We will go through a detailed risk appraisal for you, explaining fully what kind of benefits, investments, and fund choices available with ISAS. At Brian Mole IFA we pride ourselves on offering financial advice in a professional, unbiased, friendly manner which will always be clear to understand.

Before any investments are recommended, you will receive a report in writing for you to read and keep, for your understanding, reference, and peace of mind.