Play your cards right for a Nisa savings return
THE New Isa launched on Tuesday introduced simpler tax-free saving, higher annual limits and more flexibility to switch to and from shares and cash.
Here are six facts you need to know about Nisas: 1 YOU can now shelter up to £15,000 in the current tax year ending April 5, 2015 – and put it all in cash, all in shares or a mixture of the two.
At the moment those who want to hold both cash and shares will find it easier to take out a cash Nisa with a bank or building society and a separate shares Nisa with a broker or fund manager.
The new flexible rules were announced in the March Budget and caught providers unaware – meaning few are ready to keep cash and shares under one roof, at least in a form attractive to investors.
Share Isa providers, such as Fidelity and Hargreaves Lansdown, have always offered a ‘cash park’ for equity plans where your money sits waiting to be invested.
The interest on this is now paid tax-free, but current rates can be as low as 0.5 per cent – or even zero.
Jason Hollands of London-based broker Bestinvest says investment firms will not offer the best cash deals. He says: ‘Without a banking licence they won’t be able to offer long-term fixed-rate deals and are unlikely to be able to offer interest rates as competitive as those negotiated by the banks.’ 2 INVESTORS have been able to transfer from cash to shares Isas since April 2008, but it has become more popular because of the miserly interest rates paid on cash accounts.
Danny Cox of Bristol-based Hargreaves Lansdown says: ‘Cash-toshares accounts for half of all our transfers now, compared with 30 per cent at the start of the year.
‘I expect that to continue until interest rates start to rise.’ 3 MOVING from shares to cash is a more laborious process and can take up to 60 days, depending on what underlying investments are being sold.
Cox says: ‘Fund platforms are geared up for faster transfers, but fund companies and shares registrars aren’t, so much of the work is manual. Even when the investments are sold it can take five days for the cash to clear.’ 4 WITH the new savings limit, cash investors should consider steadily shifting other savings sitting in taxable accounts into cash Nisas.
But keep an eye on the rate and be ready to switch. Rules mean that you should be able to change providers for cash Isas in just 15 days.
To transfer a cash Nisa complete a transfer form – do not cash in your current plan. The best deals are currently fixed rates, including a twoyear fix from Virgin Money at 2.1 per cent and a three-year fix from Clydesdale and Yorkshire banks at 2.45 per cent.
Cox says: ‘I wouldn’t tie up cash for too long as rates are likely to rise within the next 12 months. I’d certainly avoid five-year fixes, which are paying at most 3 per cent. I’d rather get instant access at about 1.5 per cent and shift when rates rise.’ 5 WATCH out for fixed-rate top-up pitfalls, says Anna Bowes of SavingsChampion. These can trip you up if you don’t deposit the full amount earmarked for your account at the time of opening. She warns: ‘Some fixed-rate Nisas allow top-ups throughout the tax year, many allow them for just one month and some vary in dates throughout the year.
‘Some allow top-ups on existing rates while others require that you open a new fixed-rate deal.’
For NatWest and RBS, top-ups are allowed only until July 18 on one of its fixed rate Nisas, while other providers allow until the end of the tax year. 6 WANT to be a Nisa millionaire? Fund group Fidelity estimates that a saver investing their full Nisa allowance each year from now on – assuming the limit rises annually with inflation – could build a £1million pot in 25 years with an average annual growth rate of 5 per cent.