New Isas allow more tax-free saving

Savers will be able to stash more of their cash away tax-free and have more flexibility over their pots when new "super-Isas" come into being tomorrow.

New Isas have a more generous annual allowance of £15,000 that can be held in stocks and shares, cash or any combination of the two
New Isas have a more generous annual allowance of £15,000 that can be held in stocks and shares, cash or any combination of the two

From July 1, people will receive a more generous annual Isa allowance of £15,000, which they can hold in stocks and shares, cash or any combination of the two.

Isas will become "New Isas", also known as Nisas, from tomorrow and this applies to all existing Isas as well as new accounts opened after July 1.

The measure was announced in the Budget and follows calls from savers' campaigners for the rules around Isas to be relaxed. Previously, people have only been allowed to save up to half of their annual Isa allowance in cash and the remainder in stocks and shares.

Any money which has already been placed into an Isa during the current tax year, which started on April 6, will count towards the new £15,000 super-Isa subscription limit for 2014-15.

Under the new rules, savers will also be able to transfer previous years' Isa savings freely between stocks and shares and cash if they wish.

Despite the greater freedom for savers, comparison websites warned that the typical potential returns on offer have worsened since Chancellor George Osborne made the announcement in spring.

Rachel Springall, spokeswoman for Moneyfacts.co.uk, said that since March, the average rate on offer on a one-year fixed-rate Isa has fallen from 1.58% to 1.48%. T he typical rate on a variable cash Isa has fallen from 1.26% to 1.21% over the same period.

She said that by comparison, rates on accounts for which tax is payable have remained broadly unchanged in recent months, with the average one-year fixed bond consistently paying around 1.42%.

Ms Springall said: " The falls in rates will likely cause much disappointment for savers who did not see a fruitful Isa season this year and have pinned hopes on the new limits to provide new deals so they can boost their income.

"Challenger banks appear to be leading the way with decent Isa deals lately, Virgin Money launched a market-leading one-year fixed Isa paying 1.76% which accepts transfers in, they also launched an easy access Isa, allowing transfers in, paying 1.50% which sits in the top five best deals.

"In addition, Aldermore launched a two-year fixed Isa paying 2% and although it's a fixed rate it will allow access subject to an interest penalty and accepts transfers in."

She continued: "Some building societies are reviewing their tax-free range ready for July, such as Leeds Building Society who is launching an innovative Isa builder paying 2.00% fixed which will allow customers to gradually deposit more each month until it hits the £15,000 mark.

"This is a great way for savers to steadily increase their savings pot and treats customers very differently compared to some providers who are only giving a small window of opportunity to invest in its fixed range."

Ms Springall said that if people are waiting to see if better Isa deals start springing up from July, they should remember to make sure that any transfers in they want to make from other Isas stay within their "tax-free wrapper" rather than simply withdrawing the cash to deposit elsewhere, as the funds will then lose their status of being ringfenced from the taxman.

Kevin Mountford, head of banking at MoneySupermarket.com, said: "The current rates on offer are stagnant and uncompetitive. "

He said savers will need to be prepared to shop around to get the best deals. Research conducted by MoneySupermarket earlier this month found a widespread lack of awareness about the new Isa rules.

Nearly two-thirds (63%) of more than 2,000 people surveyed said they were unaware that the new rules kick in this week. However, one third (35%) said they are likely to use a Nisa as a result of the changes.

Figures released by the British Bankers' Association (BBA) last week showed a plunge in people ploughing their savings into Isas compared with a year ago.

The BBA's report said: "There has been a lower take-up of Isas this year, with £5.3 billion being deposited with high street banks during March to May, compared with £9 billion in the same months of 2013."

Between April 6 and June 30 this year, the total amount someone can pay into a cash Isa has been £5,940. If someone has a stocks and shares Isa, they have also been able to pay into that account, but the combined amount they pay into both types of Isa has not been allowed to exceed £11,880.