Did you miss the tax-free savings opportunity of the year?
Do you remember we told you about a high-interest savings opportunity that was also tax free back in May ? National Savings (NSI) were offering 0.5% plus the current high rate of RPI inflation (5.4%) and accidentally-on-purpose annoying all the banks who would much rather keep your cash in their coffers. If you had spare dosh languishing in a rubbish bank account you’d have probably bitten our arm off. And if you didn’t get round to it yet, you’d better start gnawing at your own extremities as the deal was swiftly and unceremoniously pulled last night.
Although the savings certificates were only around for less than four months, around 500,000 bonds of between £100 and £15,000 were sold in that time. As the Government were only looking for £2bn of investment, and their own rules forbid them from dominating the savings market (through NSI), the website and call centres stopped taking new sales at close of business on yesterday. Postal applications received on today would be honoured, but all postal applications received after midnight today/tomorrow will be returned to the customer.
Drat. I never got round to it. Can I still save tax-free?
Idiot. Although the NSI tax-free savings certificates route is now closed, you can still invest in a cash ISA (up to £5,340 in the current tax year which ends on 5 April 2012) or a stocks and shares ISA (up to £10,680) and get any interest or gains tax free. But beware- according to moneyfacts.co.uk, the top cash ISAs are paying about 3% interest gross, but you can get 5 year bonds (similar to the NSI ones) that pay about 4.60% pa- if you are a basic rate taxpayer that’s a net return of 3.68%, 0.68% higher than an ISA, after tax.
Also, remember that you have a personal allowance, as does your wife/husband/partner* and your children, so make sure you everyone has sufficient savings to try and use their tax free amount of £7,475 (although you'd need a huge nest egg to be able to generate that much in interest at today's rates). Do beware though, that if children earn interest of more than £100 on cash given to them by their parents, then the interest is taxed on the parent, thus rendering the tax saving void. So why not tap up the grandparents instead?
And don’t forget pensions. If you haven’t got a pension, why not start one, and you can contribute £2,880 (topped up to £3,600 by the taxman) with no earnings at all, although how you would then have the cash to put away is another question entirely. Of course the major downside to this plan is that you, or your children (who are also entitled to start saving for their retirement from birth) cannot get your mitts on that cash until retirement age. Which is subject to change at the whim of Government- just ask all those pensioners who paid into pensions knowing they could get the cash out at age 50. Who now can’t. For at least 5 years.
*but possibly not all three. At once.