By Paul Lewis
Is there still life in the cash ISA? That is what many are asking now that, thanks to the new personal savings allowance, the first pound;1,000 of interest on savings is free of tax. Why save in an ISA when a simple savings account will earn interest paid gross and for 95% of us it will be tax-free?
There is another problem with ISAs.
Interest rates are generally slightly lower than those for normal easy access cash accounts. The best unrestricted online cash ISA is Coventry Building Societys Easy Access ISA paying 1.3%. But you can get 1.45% from RCI on its online Freedom Savings Account if this housed your only savings, you could have nearly pound;69,000 in it before any tax would be due.
You can earn a bit more on an ISA if you are prepared to give notice before a withdrawal, or open and manage it by post. But for most people the ease of the online savings account will beat the hassle of the ISA, even if it pays a fraction of a percentage point more.
On fixed-rate savings over one to five years the best regular savings accounts beat the best cash ISAs over every period. For example Punjab National Bank pays 1.9% on a two-year cash ISA, but 2.2% on a two year cash savings account.
Cash ISAs are still a good idea for people whose income from savings exceeds their tax-free personal savings allowance. The pound;1,000 for basic rate taxpayers falls to pound;500 for those who pay higher rate tax (income over pound;43,000). There is no personal savings allowance for people who have a taxable income over pound;150,000, when top rate 45% tax begins.
There is one more reason why cash ISAs should still be considered. This year you can put in pound;15,240. Once in an ISA the interest earned on that money stays tax-free as long as the account is open. So if rates or your income rise significantly in future, that tax-free harbour may become more valuable.
All accounts mentioned here are covered either by the Financial Services Compensation Scheme, which protects your money up to pound;75,000, or the European equivalent, which protects it up to euro;100,000 about pound;76,000.
Have you got more than pound;100,000 in cash? Want to get more from your savings? Then call Savings Champion free on 0808 164 0223 or click here to find out how you can get the best returns with the least hassle.
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