Are you a savvy saver?

ISAS are making a comeback as interest rates rise. TRICIA PHILLIPS has all you need to know

SAVERS fell out of love with ISAS as rock bottom interest rates left them thinking they weren’t worth the bother. But they are making a comeback.

Leeds Building Society has seen new ISA accounts quadruple over recent months as savers race to open them to take advantage of rising interest rates on top of tax-free savings.

Matt Bartle, head of products at Leeds Building Society said: “Opening an ISA is a savvy move for any saver. During the current cost-ofliving crisis it’s more important than ever that you make smart choices. Making your savings more tax efficient really makes sense.

“It’s important to regularly review savings to make sure they are still working for you.

“There are some good rates available now – particularly with fixed rate ISAS, allowing savers to lock into higher interest rates, as well as protecting themselves from paying unnecessary tax.”

While many of us don’t have much spare cash at the moment, trying to put a little away and build up a financial safety cushion is important.

Even a few pounds here and there or asking for money for Christmas instead of more clutter could be the way to get started.

WHAT IS AN ISA?

ISAS – or Individual Savings Accounts – launched in 1999, offering a tax-free way to save. Savers have a current annual allowance of £20,000 to invest, with interest earned in these accounts tax free.

There are around 27 million ISAS with more than 12 million people contributing to them.

You can use your annual ISA allowance right up until midnight on April 5 and your new allowance begins on April 6.

WHAT IS YOUR PERSONAL SAVINGS ALLOWANCE?

The Personal Savings Allowance (PSA), introduced in 2016, means basic-rate taxpayers can earn £1,000 of interest on savings every year, before they are taxed. Higher rate taxpayers can earn £500 a year.

When interest rates were low, most savers would have needed around £75,000 before they would use up their PSA allowance.

But now rates have risen, anyone with around £25,000 in savings could be liable for tax (£12,500 for

higher rate taxpayers).

WHAT ARE THE BENEFITS OF AN ISA?

Whatever tax band you fall into, the interest on an ISA is completely tax free – it doesn’t count towards your Personal Savings Allowance so allows more of the interest you earn on your savings to be tax free. While it’s always good to prioritise repaying debts before saving, if you can afford it, now is the time to be saving to make the most of higher interest rates. Types of ISA include:

CASH ISA – VARIABLE RATE, OR FIXED RATE: The longer the term you can put your money away for, the higher the interest rate you’ll receive.

Some are “flexible”, which allow you to take money out and replace it without using up more of your annual ISA allowance.

Stocks and Shares ISA: works like a cash ISA, except you’re investing your money rather than putting it in a savings account.

Your money is at risk as the value of your ISA can go up or down, depending on how your investments perform.

But, like cash ISAS, any interest is tax free.

LIFETIME ISA (LISA): to help people save for their first home, or retirement. The Government tops up savings with a 25% bonus.

If you save the maximum £4,000 you can put into a LISA each year, you’ll get an annual £1,000 bonus.

You receive the bonus either when you put a deposit down on your first home, or when you turn 60.

If you need your money for anything else, you face a hefty 25% withdrawal fee.

JUNIOR ISA: cash or stocks and shares. Allows parents to save up to £9,000 a year, for their child.

The child gets control of the money deposited in their Junior ISA on their 18th birthday, when the account turns into a Cash ISA.

CAN I HAVE SEVERAL?

Yes, you can split your allowance of £20,000 between different ISAS, but you can only pay into one of each type of ISA per tax year.

You can have several old ISAS with different providers. Some providers allow you to open and pay into more than one cash ISA, for instance a fixed rate and an easy access, as long as you stay within the £20,000 allowance.

WHAT IF I NEED MY CASH?

Every little helps when it comes to building a cash buffer

It’s important to regularly review savings to make sure they are still working for you

Matt Bartle of Leeds Building Society

If you have a fixed rate ISA, there may be limits on how many withdrawals you can make in a year. Check the terms and conditions.

CAN I TRANSFER MY FUNDS TO A NEW ISA?

You can transfer your ISA to another provider if they accept transfers. Be aware, it can be easy to lose the tax-free wrapper if you don’t follow the right process.

WHAT HAPPENS WHEN MY ISA MATURES?

You can move your money to another ISA with the same provider, or to an ISA with a different provider.

As long as the money you’re moving is from a previous tax year, it won’t count towards your current allowance, however much you have.

You can also move cash to a nonisa account but your money will lose its tax-free status.