Right now, tens of thousands of savers across the country are scouring the ISA market, in the hope of finding the best possible deals as the current tax year draws to a close. Allowing customers to earn tax-free interest, ISAs – aka Independent Accounts – have become the standard go-to for private savers and investors alike. They are available in the form of cash ISAs and stocks & shares ISAs.
The account holder is allowed to deposit slightly more than £15,000 in the account each year, but what’s unique about an ISA is the way in which interest continues to be earned on the total balance over time. Which in turn means that if you pay the full amount in each tax year and continue doing so for life, you could just be in for a healthy return in interest payments that’s out of the reach of the tax man.
All of which is precisely why the latest figures suggest that at least one in every two consumers now has an ISA of some description.
Which begs the question – what’s the catch?
The answer…well, of course there’s a catch to it all – in this case being the fact that finding an ISA that offers anything more than a rather paltry annual rate of interest is tricky to say the least. In fact, studies have shown that across the UK, the current average interest rate offered on standard ISAs is no more than 1.06%. Which in turn means that unless you have a pretty hefty sum put away, the interest you’ll receive on your savings won’t exactly be explosive.
Of course, there’s always the option of the stocks and shares ISA, which has the potential to deliver better returns than a cash ISA. Rather than just holding your money in an account, the money is invested in the stock market with the intention of boosting it more significantly. The only downside in this instance being that the stock market is consistently unpredictable and carries its own inevitable risks.
And just to complicate matters a little further, there’s now a further option for those looking into the idea of an ISA. The government has introduced the new IFISA – or Innovative Finance IS – which earns interest through peer to peer lending and is also tax-free. Along with throwing an important lifeline to the alternative finance sector, it represents an attractive alternative for savers at all levels.
It is a sector that is expected to grow exponentially over the coming years and has been labelled a true ‘game-changer’ by some.
“The P2P sector has flourished in recent years, but the IFISA was seen by many in the industry as a game-changer. It was anticipated that savers would switch in their droves from their poor-paying cash ISAs for something far more rewarding,” comments Andrew Hagger, writing in The Independent.
“However, even though the Government confirmed in the Budget last July that P2P lending would be eligible for inclusion in tax-free ISAs […] uncertainty remains over whether the Financial Conduct Authority (FCA) will give them the green light come 6 April.”
Independent financial advice is a must when considering short-term and long-term savings options alike, in order to understand both the risks and the opportunities available. For more information or to discuss current UK ISA options, get in touch with theteam today.