ISA nearly the end of the tax year
There is only one week left until the 2011/12 tax year closes, and with it the opportunity to invest up to £10,680 (£5,340 in cash) in an ISA. Of course you can still invest in an ISA next Friday, on 6 April, when the limits increase to £11,280 and £5,640 repsctively but then you will have wasted your 2011/12 allowance. And we do hate waste. Particularly tax-free waste.
But I know what you’re thinking. Who has got the spare cash to invest in an ISA? Well, new figures from Halifax suggest that, despite the economic strain, cash ISA balances have increased by a modest 23% in three years.
This is only a modest increase, as you would expect the amount to have more than tripled if everyone was using their full allowance amount. This is clearly not the case, as Halifax claim that the average cash ISA account balance is £8,949, an increase of £1,113 from the January 2011 average figure of £7,836.
HMRC figures suggest that the average amount saved in an ISA every year is about £3,000, so the fact that balances have only increased by just over a third of this figure might show how strapped the UK is for cash, or may indicate people have had to dip into their ISA savings.
But it’s always better to be safe than sorry, and if you do have a bit of spare cash to invest in an ISA, it is always better to use the previous year’s allowance if you can in case of an unexpected windfall. And remember- there may be a week of 2011/12 left, but if you want to invest in an ISA you do need to get your skates on- if the bank/building society involved does not accept Faster Payments, or you are depositing by cheque, you will need to leave 3 or 4 working days for the funds to clear, or you will miss the deadline. This means Monday at the latest.
So what are your instant access cash ISA options looking like? As we predicted, the top rates available have increased in the past couple of weeks and you can now get up to 3.5% per annum with either the Cheshire Building Society or the AA, provided you have a minimum of £1,000 or £2,500 to invest. Santander are next with 3.3% for £2,500 or more, followed by Skipton, Principality and Nationwide at 3.1%. Both the Skipton and Principality rates are available from £1. All rates from moneyfacts.
But what if you have already invested your ISA amount for this year? Well from next Friday you have a whole new allowance to use up, and the annual limits are deliberately divisible by 12 to enable easy calculation of monthly investment amounts. However, if you have been building up your cash ISA pot over a number of years, you are unlikely to be still getting a good deal- most ISA rates have a 12 month bonus period, after which the rate falls to something laughable.
But don’t worry, you can transfer an ISA without using up your annual allowance amounts provided you make a direct transfer from ISA account to ISA account. Banks have had their kuncles rapped in the past by the Financial Ombudsman, so the process should be simple and straightforward if you ask your provider.
However, the headline cash ISA rates above may not be available to ISA transfers, only for fresh new ISA investment- only three of the rates quoted above are available for reinvestment (and all include an introductory bonus). Loyalty does not pay in the cash ISA game.
The top deals on ISA transfers are the Santander, Principality and Nationwide rates quoted above, plus the Halifax and Natwest coming in at 3% each with no minimum investment. You can get higher rates- up to 4.5%- if you know you will not need to touch the cash for a fixed period, by tying your money up in a fixed rate bond for up to five years.