Why the new £20,000 super Isa is a deal you CAN’T afford to miss

SAVERS will be offered a terrific deal tomorrow — one they simply can’t afford to turn down.

Under landmark changes to Isas, the annual tax-free savings allowance will rocket from £15,240 to £20,000.

It’s a huge step towards abolishing savings tax altogether, as everything you earn from the investments will be tax-free.

The super- sized allowance is something Money Mail has long called for. It effectively turns these once modest tax shelters into Super Isas that allow you to shield every penny of your rainy day fund from the taxman.

And because each individual gets an allowance, a couple can save £40,000 between them. So very few ordinary savers will need to invest outside an Isa again.

As well as helping get rid of savings tax, the move could save the Isa from extinction.

In recent years, many savers have fallen out of love with Isas.

Created in 1999, Isas became a national institution, with 14 million savers regularly paying in.

The overall amount you can put in has almost trebled since then, when you could put in just £7,000 a year. But the accounts, inspired shareholders — each year without paying tax. But in 2018, this allowance will fall to just £2,000 a year. By contrast, every penny of income from money held in Isas will be taxfree. The same is true for any gains you make on your investments. That means you never have to worry about capital gains tax on your returns. If you had invested £15,000 into the FTSE All Share index over the ten years to December 31, you would now have £25,769. But if you had left your money in the average savings account, you’d have just £15,846 — a difference of almost £10,000. So using your Isa allowance to its maximum could pay off the mortgage, the deposit on your child’s first house or put your grandchildren through university. However, your returns will hinge on whether you invest the cash wisely. So we asked five of Britain’s top experts for tips (Pages 38 & 39) for your bumper allowance.

One of the attractions of an Isa is that, unlike a pension, you can withdraw the money at any time.

But if you’re investing in the stock market, make sure you can leave it untouched for at least five years to ride out ups and downs.

Regular saving is a much safer way than putting aside a lump sum once a year. By drip-feeding money into an Isa in smaller, monthly amounts you reduce the risk of losing cash if the stock market takes a tumble the day after you invest — it’s a simple strategy even expert fund managers use.

If you invested the full £20,000 every year for 25 years using this technique you would need a return of 5 pc a year for the pot to hit £1 million. If you invested for 40 years, you would have amassed an incredible £2.7 million.

Money can build up like this thanks to a phenomenon known as compound interest.

Though you earn 5 pc on £20,000 in your first year of investing, the next year you would earn 5 pc interest on the new balance of £20,543 — and so on.

By the tenth year, you are earning 5 pc interest on £259,920 — even though you have only actually put aside £200,000 of your own money.

So, whether you’re saving into cash or stocks and shares, follow our guides over the next pages.

And whatever you do, don’t turn your back on Isas.