Over the past few weeks, we have focused a lot of our attention on gauging the personal finance landscape for the coming year. And any way we look at it we feel that 2008 should be a year for caution and saving rather than spending. So, in this article we look at some of the attractive ISA products that are already coming on stream this year.
The decision last week by the Bank of England to hold its base interest rate at 5.5% was good news for savers. And last week saw a number of providers release details of some attractive ISA products.
So, what is an ISA? ISA stands for individual savings account. These were launched by the government to encourage people to save and invest. The chief attraction is that any interest or capital gains earned on stock-market based investments or traditional savings held in an ISA are tax free. This is particularly attractive if you paying the higher tax rate as it amounts to an extra 40% on all earnings.
“Many providers are bringing their headline-grabbing cash ISA offerings out much sooner in the year than previously. Their desire to secure more deposits is no doubt due to last year's Northern Rock debacle, which highlighted the need for providers to have substantial deposits. Savers can certainly take advantage of this as we head towards 5 April and the end of the tax year,” says Kevin Mountford of moneysupermarket.com.
“Last week, we saw Icesave's Mini Cash ISA enter the market paying 6.1% AER, following hot on the heels of Scarborough Building Society's new Direct Notice ISA, which tops the table at 6.3 per cent.”
Other good deals include Principality BS, Kent Reliance BS, Stroud & Swindon, and Egg. Interestingly, last year's top ISA products wouldn't even make it into this year's top 10, which is a further incentive to save this year. There could be some even better deals coming onto the market in the coming weeks so keep an eye on what's out there.
However, you should remember that it isn't all about percentage rates. The best product for you will depend on whether you want to make payments in, and whether you will need to withdraw money at short notice.
“If you’ve been using your ISA allowance diligently for a number of years, you’re likely to have a tidy sum stashed away that you could transfer into a new, higher-paying account. About half of the top ISAs on the market don't allow you to transfer previous lump sums in, so savers need to read the small print,” says Kevin Mountford.
In fact, there are a few rules and regulations surrounding ISAs that you should be aware of. There are two types of ISA – mini and maxi. You can invest in two mini ISAs or one maxi ISA. With a mini ISA you can have up to £4,000 in stocks and shares and £3,000 in cash. As mentioned, you can have two mini ISAs in one tax year, but it must be one of each. You can not have two mini cash ISAs or two mini stocks ISAs.
The alternative is to invest in one maxi ISA. Here, you are limited to having all £7,000 in stocks and shares, or up to £3,000 in cash and the balance in stocks and shares.
With the most attractive interest rates we have seen in a long time, ISA cash investments look like a good idea for the year ahead. Given last year's turmoil on the stock markets, we urge you to tread a little more carefully when it comes to investing in shares.