Choosing An ISA For The 2008-2009 Tax Year
Written on March 12th, 2008
It’s that time of year again. The UK financial year is nearly over and Alistair Darling, the Chancellor, has unveiled his budget for the next tax year. For those of us who consider ourselves financially savvy, the run up to the new financial year is the time to be hunting around for a good deal on an ISA - an Individual Savings Account. The difference between an ISA and a normal run-of-the-mill savings account is that ISAs are tax free.
Huh? Tax on savings?
That’s right. When you place money in a savings account, the bank pays you interest on that money. However, 20% of that interest paid to you by the bank is taken by the Government.
Oh, so, ISAs are tax free? What’s the catch?
Until now, you could deposit only £3,000 per tax year into an ISA. That means that if you deposit an initial £2,000 and withdraw £1,000, you can only deposit another £1,000 - bringing the balance back up to £2,000 - until the start of a new financial year.
If you have savings (and I hope you do!) that are not currently in an ISA, you are giving money away to the Government for absolutely no reason. It is silly not to have an ISA.
The Good News
The good news is that for the 2008-2009 financial year, that £3,000 limit has been increased to £3,600, which means that all of the banks are competing for customers who are hearing about the increase in the allowance and thinking about opening accounts.
The Best Offers
Currently, the best offers on the market are from Barclays (”Tax Haven ISA”) and Alliance and Leicester (”Direct ISA Issue 4″), offering 6.5% and 6.25% AER respectively.
Barclays are able to offer the 6.5% by throwing in a 1% bonus for 12 months. If, like me, you decide to go with Barclays you will want to move your money away in 12 months time as the rate will become 5.5% which is not going to be the best available. This particular offer pays interest monthly, and has no penalty for withdrawals. There’s the usual opening balance of £1 required. The one slight downside to this offer is that you must go to a local branch to open an account.
Alliance and Leicester’s offer also has a bonus of 1% until 31/5/09, and pays interest annually on January 1st, and like Barclays has no withdrawal penalties. This account can be opened online. You will also want to move money away in 12 months time with this offer.
If moving your money away in 12 months time sounds like a lot of hassle then your next best bet is with Egg, who offer a flat 6% which includes no bonus and will likely not change into the next financial year.
Happy saving!
Filed in: Money.
