Five steps to sort your savings this spring
After a long winter, spring has finally sprung! And that means a new tax year has started – you now have a new ISA allowance to use up between 6 April 2021 and 5 April 2022.
The start of a new season is a great opportunity to review your finances as a whole and do a bit of a ‘spring clean’ and think about your tax-free allowance. There are a range of factors you need to consider when deciding the best way to use your ISA allowance. We’ve put together a guide to help you navigate your finances this April and manage all things ISA-related.
1. Have a financial spring clean
The start of a new tax year means it’s a great opportunity to do a ‘spring clean’ of your finances. As part of this, it’s important to review all your saving accounts (ISA and non-ISA), check the rates you’re receiving and consider if the accounts still fit your needs.
Do you have any smaller lump sums in accounts currently receiving low rates, for example, that you might be able to consolidate into a higher-paying account? Or dormant accounts with a zero balance you might now want to close?
When it comes to ISAs, you might want to think about consolidating any existing ISAs through ISA transfers. For your new tax-free allowance, you will need to consider if you want to top up an existing product, or split your allowance across a range of Paragon ISAs. Read on for more on creating an ISA portfolio and the potential for a Lifetime ISA.
2. Think about your emergency fund
One thing that the pandemic has highlighted is the need to be adequately prepared for a rainy day. During these uncertain economic times, it’s important to build a ‘nest egg’, that will act as a buffer should you need it.
It’s important that your emergency fund is saved in an account that offers access so you can easily withdraw your money if you need it at short notice. For this reason, an easy access or defined access account is a good option to consider.
At Paragon, we strive to offer the same rates on our ISA easy access or defined access accounts as we offer on our non-ISAs. This means that choosing to save up your emergency fund in a cash ISA is a good way to maximise your interest by not paying tax on your savings. Thanks to our Flexible ISA feature, you can also replace any savings withdrawn from your easy or defined access ISA within the same tax year without it impacting your allowance.
3. Make tax-free plans for your lockdown savings
Over the course of the last year, some of us will have seen our outgoings go down considerably. And a survey of some of our savers told us this has translated to additional savings accumulated during the pandemic. As the restrictions start to lift, it’s a good idea to start thinking about long-term plans for any lockdown cash.
It’s also a good idea to consider how much you want to save for the long-term, and whether you want to commit any of your savings to expenses such as a well-deserved holiday or home improvement.
If you are planning on retaining your savings, then a fixed-rate account could be a good option to maximise interest earned on your savings.
4. Creating an ISA portfolio
With Paragon, you do have the option of opening more than one ISA within the same tax year thanks to our handy ISA Wallet feature. This means you can split your allowance between easy access, defined access and fixed rate accounts.
This is perfect if you want to lock some of your ISA allowance away for a fixed term, whilst also putting some of your savings in an easy access account towards your emergency fund. It’s also great if you have different savings goals because you can deposit money into multiple accounts whilst receiving tax-free interest on your entire allowance.
5. Consider opening a LISA
If you are aged 18 to 39 and looking to save towards retirement or towards a first home deposit, the Lifetime ISA is a great option and offers some fantastic benefits. The biggest perk is of course the 20% government bonus, which is paid on balances up to £4,000 each year.
To find out more, check out our handy Lifetime ISA Q&A.