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Change to ISA rules is good news for savers; Legislative changes should make ISAs even more popular, says Steve Urwin of Newcastle Building Society.

Byline: Steve Urwin

SINCE they were first introduced in 1999, Individual Savings Accounts (ISAs) have proved a very popular way for tens of thousands of people to save money without paying tax on the interest they earn.

Even in the current difficult climate, the Newcastle has seen a 43% year-on-year growth in cash ISA balances over the last 12 months, and there is every indication that this trend will continue.

At a time where the base interest rate is at a record low level, the tax-free status of ISAs can make a significant difference to the amount your money earns.

The present ISA regime allows UK savers to deposit up to pounds 7,200 in a single ISA in a given tax year. Up to pounds 3,600 of this sum can be made up in cash, and up to the same sum in stocks and shares.

Monies can be deposited either in one lump sum, or through the year, whenever savers have it available (depending on the terms of their account).

Within the stocks and shares component, you can hold investments such as individual stocks and shares, investment products such as authorised unit trusts, open-ended investment companies (OEICs), investment trusts and life insurance products as well as gilts and corporate bonds.

The cash component permits you to hold bank and building society deposit accounts, National Savings and Investment products and investment or insurance products which aim to produce a 'cash-like' return, such as money market funds.

The regulations governing ISAs are now about to change after an announcement by the Chancellor in his most recent Budget speech, and recent research carried out by the Newcastle already suggests that these changes are going to make ISAs an even more popular savings vehicle.

From October 6 this year, the cash ISA limit for savers aged 50 and over will be increased by an additional pounds 1,500, taking it to pounds 5,100. Savers under 50 will be eligible for this new allowance from the start of the 2010/11 tax year.

ISAs are already a popular way for older people to save in the run-up to or during their retirement - around three-quarters of our ISA accounts are held by people who fall into this higher age bracket, and our latest research shows 30% of savers say they will be more likely to choose to save via an ISA when the deposit limits increase.

The new regulations do raise one immediate issue, which relates to savers over 50 who hold an account which is no longer available or which will not accept further investments in the current tax year. In this case, no new deposits would be allowed, even though the ceiling has been raised during the tax year in question.

However, the Newcastle is one of only a small number of UK financial institutions which have facilities in place, in accordance with HM Revenue and Customs rules, to enable customers to consolidate their money across a number of cash ISA products this tax year and thus invest to the new limit, even if their existing ISA product is already closed to new funds.

Newcastle's 'MaximISA' offering, which tracks the customer rather than the account within the tax year, means that they are not tied to just one product, and can choose to split their cash ISA savings with the Newcastle as long as the total balance is within the maximum allowed for an individual cash ISA.

It also means they may invest their cash allowance across different types of products, perhaps by having a fixed rate account for the original pounds 3,600 allowance, and an easy access account for the remaining pounds 1,500.

Not all cash ISA providers have their systems set up in a similar way.

If you fall into this category of saver, it's worth investigating whether your provider is able to help you make the most of your allowance for the rest of this tax year.

Remember also that, if you have ISAs from previous years, you can transfer them to another organisation to benefit from the best rates or terms to meet your individual needs.


INVESTMENTS Steve Urwin, of Newcastle Building Society. Steve Urwin is senior sales and marketing executive at Newcastle Building Society
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Publication:The Journal (Newcastle, England)
Date:Aug 22, 2009
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