The rules on ISAs change so quickly it’s hard to keep up. Here’s what you need to know for the year ahead.

With the financial year coming to a close, time is running out to put your money into an Individual Savings Account (ISA) and maximise your annual allowance. But it’s no longer as simple as it used to be.

Here’s a guide to the rule changes, increased amounts you can save, effect of low interest rates and the new type of ISA.

 

You can earn tax free interest elsewhere

You can now earn £1,000 in interest every financial year outside of an ISA, and still not pay tax on it. This personal savings allowance could mean you can get higher returns from current accounts and regular savings accounts.

The £1,000 allowance is for non-or basic-rate taxpayers and drops to £500 if you’re a 40 per cent, higher-rate taxpayer. Even so, with interest rates so low, it requires a huge amount of money to gain this much in interest.

 

The ISA allowence is growing

The ISA limit is £15,240 for this financial year, which ends on April 5, 2017. It’ll then get even higher, jumping to £20,000.

 

You can take money out and put it back in

Some providers allow you to make a withdrawal from an ISA in a financial year, and put the same amount back in without it counting twice towards your annual allowance.

 

You should move old ISAs

With interest rates so low, it’s not just your new ISA which could have poor returns. All your old ISAs are likely to have had their rates slashed too.

If you want to move your old or current ISAs, you need to find a provider that accepts transfers and ask them to move the money. If you withdraw instead, the amount you can put back in will be restricted by the annual allowance.

Watch out for any related penalties from your current ISA provider.

 

There's a third way for everyone to save

Traditionally you can have a cash ISA, an investment ISA, or a mixture of the two. Now there are also innovative finance ISAs, which put cash into peer-to-peer lending.

As with investment ISAs, there’s the chance of larger returns, but you could also lose some of your money. The companies offering these ISAs aren’t covered by the Financial Services Compensation Scheme either, so there’s no protection for your cash if they go bust.

Very few of these ISAs are available, so perhaps consider them for the future rather than right now.

 

First time buyers can get a big bonus

Another new option is the help-to-buy ISA. It’s open to any UK residents who have never owned a home. The government will give a 25 per cent bonus on money saved up when a property is purchased.

You can deposit £1,000 then £200 a month, up to a maximum of £12,000. If you’ve already opened a cash ISA this year, you won’t be able to also have a help-to-buy ISA.

 

 

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