Spring into Isa season with your new tax year resolutions

Isa season is in full swing, as savers enter the new tax year looking for fresh deals.

While the market has been a touch lacklustre in recent years, there have been signs of life in recent weeks and an Isa could well be worthwhile, depending on your savings needs.

So here’s a guide to how Isa saving could help you...

How do Isas work?

Isas are a tax-efficient way of building a savings pot. Money held in Isas is ring-fenced from the taxman. While there are many different types of accounts to choose from, research from Aldermore Bank found that more than three-fifths (62%) of people use only one Isa product to save.

Are they still worth it?

The introduction of the personal savings allowance has led many savers to question whether it’s worth bothering with a cash Isa, given they no longer pay tax on the first £1000 of interest, or £500 for higher-rate taxpayers.

But Sarah Coles, a personal finance analyst at Hargreaves Lansdown, says it’s important to think ahead.

“The key is what you could save further down the line. The tax savings on Isas accumulate as your savings build,” added Sarah. “These savings will be magnified if interest rates rise, you move tax brackets, or the savings allowance is cut.”

Meanwhile, there have been signs of an upturn in the market this spring. Rachel Springall, a finance expert at moneyfacts.co.uk, says: “As we have seen more than 100 rate rises to Isas since the start of 2018, it’s worthwhile for savers to consider utilising their Isa allowance for the long-term benefits, and avoid any delay in applying for the top rates before the buzz of Isa season fizzles out.”

How can you make the most of your Isa allowances?

What you are saving for will have a bearing on which type of Isa you choose. For the longer term, stocks and shares may be an option to consider. Or a cash Isa may be more suitable if you want to access your money quickly and don’t like the idea of risk.

“You can tailor your Isa to take exactly the amount of risk that suits your needs,” says Coles.

“You can opt for a cash account, conservatively-invested funds, more adventurous funds, single company shares, or any combination.”

The Isa allowance for 2018/19 will remain unchanged at £20,000.

What about kids’ savings?

There are cash, as well as stocks and shares versions of Junior Isas, also known as ‘Jisas’.

Parents can open a Junior Isa and manage the account on their child’s behalf. They can’t withdraw the money until they turn 18.

It can be a great way of getting children into the savings habit.

How about people saving for their first home?

Some Isas have Government bonuses to help you on to the property ladder. Under-40s can open a Lifetime Isa, which helps people save for their first home, or their retirement, in the same pot. Help to Buy Isas are also available.

What other types of Isas are there?

Many people are now interested in ethical savings accounts, which could have a positive impact. Two-fifths (42%) of savers would be motivated to save in an Isa if they knew their money would be used to finance improvements to society, a survey by Triodos Bank has found.

There are also ‘innovative finance Isas’, where money invested through peer-to-peer lenders can be held. The potential returns available may be higher with an innovative finance Isa than just keeping the money in a cash account, but there are also risks which should be carefully considered.