HOW TO GET A BETTER

Saving into an ISA isn’t the most exciting thing to do with your cash, but it’s a good way of sheltering money from the taxman, says Yours money editor Sarah Jagger

Individual Savings Accounts (ISA) are one of the most generous ways to save today. And they have just got more attractive with the new annual allowance rising to £20,000. More than five million over-50s are expected to take advantage of this. Here’s all you need to know.

Now you can choose

Each tax year starting April 6, you can open an ISA and save cash or invest in stocks and shares or do a combination of both. You can now choose how you split your annual allowance, too. For example, you could choose to save £15,000 in cash and £5,000 in stocks and shares or put it all into cash or all into stocks and shares. You pay no income tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax (CGT). ISAs are now more flexible, too, thanks to a recent rule change that allows you to withdraw and replace money without affecting your yearly allowance, provided it takes place within the same year. In the past, if you took money out of your ISA and then replaced it at a later date, the money you put back in reduced your allowance for that tax year. Currently, twothirds of over-50s have a cash ISA while four-in-ten hold a stocks and shares ISA.

ISA transfers

Whether you choose cash or the stock market will depend on your investment risk attitude. But if you’re struggling with low savings rates and don’t mind taking a little risk with your money in the short term for a longer-term gain, switching to a stocks and shares ISA could help boost returns. If you already have an ISA, check that it’s still earning a decent rate – if it isn’t, switch. But don’t just withdraw your money and pay it into a new ISA because it will lose its tax-free status. Ask your bank to do an ISA transfer instead. Current best buys include Virgin Money which pays 1.01% on its easy-access ISA and also has a one-year fixed ISA paying 1.05%.

Little and often is best

You don’t need to pay lump sums into your ISA. With a stock market ISA, it makes sense to drip feed your money in regularly so you can benefit from stock market ups and downs, giving you a better chance of buying more for your money on down days. Set up a monthly contribution so it becomes a standard outgoing. And if you don’t think you have any spare cash to save, cut out caffeine! Fidelity International says you can boost ISA savings by £50 a month or £3,091 over five years by ditching shop-bought coffee.

Two-thirds of over-50s have a cash ISA while four in ten hold a stocks and shares ISA