As ISAs reach their 11th birthday, more and more people are taking advantage of ISA season and the products available to maximise their cash savings and investments. Whether you’re new to savings or well versed in the benefits of tax-free wrappers, we’ve compiled some top tips to help you grow your savings pot.
Start now
Saving isn’t easy. Our disposable income is shrinking, with difficult economic conditions and more to spend our money on. It can be easy to put saving off – but you’ll thank yourself later by starting now. Taking the first step by opening an ISA and depositing the minimum amount is easy and will set you on the right track to growing your savings pot.
Little and often
Save £50 a month for a year and you’ll have £600. That’s far easier than setting aside £600 in one go. Getting money out of your account and into your savings pot the day you get paid is a great way to ensure you put money away little and often – and paying yourself first ensures you won’t get to the end of the month with nothing left. Save £100 a month for a year and you will have £1,200 – and that’s before interest…
Shop around
There are five different types of ISA – each tax free but with additional, unique features. Cash ISAs can be instant access, have notice periods or be fixed, with an annual allowance of £20,000. With so much choice across each of the five products, it’s important to shop the market, do your research, and choose a product that is right for you.
It’s also worth remembering that many best-buy ISAs pay a bonus rate for the first year, at the end of which the rate falls off a cliff. So, it’s important to keep one eye on the future when you shop around.
Save longer
No easy access savings account currently keeps pace with inflation, meaning you risk losing money. With record low rates offered by high street banks, £20,000 in an easy access account paying 0.15% for five years would grow to £20,150. But with inflation at 2%, this represents an aggregate loss of £1,750.
Depending on how much cash you’re prepared to lock away without access, you might be able to earn more by saving longer. Ideally, your interest rate would beat the rate of inflation.
Use it or lose it
Each tax year, you have an annual ISA allowance. This allowance is ‘use it or lose it’, meaning that if you don’t use all or part of it in one tax year, you cannot carry it over to the next.
You can pay into multiple types of ISAs each year in whatever proportion you like – although you can only pay into one of each type per year. According to independent researcher FundCalibre, around 40% of ISA investments are not made until March each year, as ISA investors look to use their full allowance before the new tax year.