VICTORIA BISCHOFF: Rates are continuing to creep up… so don't abandon the Isa

When the Isa was first announced in 1997, the then Chancellor, Gordon Brown, said he hoped it would encourage a new national savings habit.

And his wish came true. Britons fell in love with the tax-free account, piling hundreds of millions of pounds into cash, stocks and shares every year.

The start of March is now known as ‘Isa season’, when banks and building societies frantically launch top deals to lure savers rushing to use up their annual allowance before it resets on April 6.

The start of March is now known as 'Isa season', when banks and building societies launch top deals to lure savers rushing to use up their annual allowance before it resets on April 6 The start of March is now known as 'Isa season', when banks and building societies launch top deals to lure savers rushing to use up their annual allowance before it resets on April 6

The start of March is now known as ‘Isa season’, when banks and building societies launch top deals to lure savers rushing to use up their annual allowance before it resets on April 6

But the arrival of the personal savings allowance, which enables basic-rate taxpayers to earn up to £1,000 in savings interest tax-free, has had the knock-on effect of diluting the cash Isa.

This is because you could often get a better rate with an ordinary taxable account and still pay no tax on interest earned.

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Politicians had also realised by this point that Isas were a vote-winner and had launched a string of new types of account.

All this means a once very simple yet brilliant savings product can now be fiendishly complicated.

Meanwhile, after ten years of rock-bottom rates, the amount of money we are putting aside for the future is also at an historic low.

But none of this is proof that we should stop saving — and we certainly shouldn’t abandon Isas.

Indeed, if rates continue to creep up, we increasingly risk exceeding our personal savings allowance — particularly if you are a higher earner with a lower tax-free allowance of £500.

The Government is also far more likely to scrap the personal savings allowance than touch our precious Isas (only last year, the tax-free dividend allowance was cut from £5,000 to £2,000). 

Meanwhile, for those dabbling in the stock market, an Isa protects any profits and income from tax.

And, best of all, as our Prudent Investor points out, Isas make filling in your tax return a doddle.

So, for now, long may the love affair continue.