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Tax-free savings are worth looking at.

Byline: Steve Urwin

THE dramatic fall in interest rates over recent months has had a clear impact on the monthly cost of the mortgages that we pay, with he majority of us saving money.

However, the other side of this e has been the corresponding fall in interest rates for savings accounts, an equation which, as a mutual organisation, we have tried hard to balance as best we can.

Many of us, and particularly older people, tend to rely to some degree on the money accrued by our savings and investments to help pay the bills, and when the returns that we're making fall as quickly as they have in the last year, that can obviously cause problems..

So at a time when no financial institution is offering savings products which come anywhere comparing with what was on the market just a few months ago, and with interest rates showing no signs of going back up again until next year at the earliest, what should savers be thinking about when trying to decide the best place to put their savings? In many ways, despite the unprecedented economic climate, the same ground rules that have always applied when it comes to savings continue to do so, with the key thing to remember being to decide what suits your specific requirements best and then stick with that.

To begin with, identify the term over which you want to be saving - will you need your capital back after a year, or can you afford to leave it untouched for, say, three, five or even more years, thereby potentially gaining a better rate of interest? As part of this planning, look at any interest penalties you might face for requesting early access to your funds.

Additionally, many accounts offer the option of annual or monthly interest rates. While annual interest rates are often slightly higher, many people prefer to receive monthly income, for example if they rely on income from their savings to pay household bills.

You then need to consider what degree of risk you are prepared to take with your money. Are you looking for full protection of your capital investment in, for example, a bond which guarantees you get the whole sum back at the end of the term, or are you willing to risk losing a proportion in search of better returns? Perhaps the best piece of short-term savings advice I can provide is to make sure you make the best possible use of the imminent rise in tax-free savings allowances, especially if you are an older saver.

In the Chancellor's most recent Budget, he announced that the annual ceiling for cash ISAs will rise in October from pounds 3,600 to pounds 5,100 for people over 50, and for everyone from April 2010, with the same amount also permitted to be held in a stocks and shares ISA on the same dates.

Recent figures released by the Newcastle suggests the number of people failing to use their full ISA allowance halved from 32% in 2007/08 to just 13% in 2008/09, and we are already seeing increasing numbers of people turning to cash ISAs for this tax year, in light of continuing stock market uncertainty.

The same Newcastle member survey found that 77% of all respondents said they would use their full ISA allowance before opening any other type of savings accounts in the next tax year.

Putting aside questions over whether the new ceiling is high enough to accommodate people's savings choice, we expect that ISAs will be the savings tool of choice for this tax year - and all customers over the age of 50 who use their full pounds 3,600 cash limit by this October should be able to put the remaining pounds 1,500 into specific products available at the time for the remaining tax year.

One final thought to bear in mind - not all ISA providers have the infrastructure in place to enable this top-up to take place, so if it is something that you will be considering, it's worth investigating whether the institutions you're looking at will allow this to happen.

There are a range of other types of savings product available and making the right decision can be a challenge..

Q& A Your money queries are answered by Peter Rutherford, senior director of Rutherford Wilkinson Ltd, independent financial advisers.

Q I am new to investment but I have heard and seen the term " gilt" being used. Can you please explain what this is? A Gilts or gilt edged securities are issued by the UK Government. The term has arisen because of the quality of the British Government's promise to make interest payments and repay the debt. They have never defaulted.

A gilt is a fixed interest security which means that, in general terms, it promises to pay a set level of interest at specific dates in the future and the debt will be repaid at a specific price at a known date in the future.

Whilst gilts are considered safe and everything is known about them, this does not necessarily make them good investments. Advice must be sought.

Q I have a property overseas that I occasionally let out. What is my tax position? A This is actually a complicated area and professional taxation advice needs to be sought. In a nutshell, however, if you are making a profit from renting an overseas property then that profit needs to be declared here.

It would be taxed here and it may well be taxed in the country in which the property sits. However, the UK has a double taxation agreement with most countries in the world and therefore you should not be taxed twice.

Q I am a trustee of a trust that was set up under the Will of my late brother. I have never been a trustee before and would like to know what my duties are. Can you clarify? A Being a trustee is an onerous position and you need to take care.

You need to understand the taxation issues and investment powers that you have and independent financial advice is essential here.

In addition, you have a duty of care to the beneficiaries and dependent upon the type of trust, this can make a considerable difference to the investments that you hold as trustee.

You must take "proper advice" and the Trustee Act 2000 defines this as the advice of a person who is reasonably believed by the trustees to be qualified to give it by his ability in and experience of financial and other matters relating to the proposed investments.

A suitably qualified independent financial adviser can make this relatively painless for you.

To request a free "Investor's Guide" and for any questions you would like answered contact me at Rutherford Wilkinson Ltd, Northumbria House, 21/23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS. Website

Telephone (0191) 217-3340 or email

Rutherford Wilkinson Ltd is authorised and regulated by the Financial Services Authority..


HOME FOR YOUR CASH If you're wondering where to invest, tax-free ISAs are probably the best option right now, says Steve Urwin, right.
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Publication:The Journal (Newcastle, England)
Date:May 23, 2009
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