Archive for the ‘Junior ISAs’ Category
Following last month’s speech by the Chancellor, George Osbourne, we give our 60 second guide to the Budget for ISA savers, offering a quick round up of the main changes and what this will mean for both cash savers and investors alike.
Your ISA Allowance
While Chancellor George Osborne may have taken the decision to maintain the Individual Savings Account (ISA) Allowance at £15,240 for this new tax year (2016/17), the chancellor also announced that from 6th April 2017, it will see a significant increase of £4,760 giving savers and investors a total allowance of £20,000 to spread between their ISA accounts over the 2017/18 tax year. The Junior ISA limit will remain at its current rate of £4,080.
Innovative Finance ISA
The recent Budget also introduced a new type of ISA which has launched for this current tax year. Announced in the Summer Budget of 2015, this has fallen slightly under the radar for many but this new savings option, entitled the ‘Innovative Finance ISA’, is designed to provide a tax-free wrapper for investors in Peer-to-Peer Lending (P2P). This ISA allows individuals to lend to others by using Peer to Peer Lending platforms but without paying tax on the interest they earn.
As this is a new distinct category of ISA, savers can open an IFISA along with a Cash ISA and a Stocks and Shares ISA (or Investment ISA), all within the same tax year – so any contributions into this type of ISA does count towards the £15,240 current tax year allowance. Although at present there are only a small number of P2P providers who have been authorised to offer their products within an ISA, there are a significant number who are awaiting authorisation. The area of P2P lending has seen significant growth in recent years and there will be more to follow on this later in the year…
Possibly one of the biggest headlines for this year’s budget was the announcement by Mr Osborne of another kind of ISA which will launch in April 2017 – the Lifetime ISA. The Lifetime ISA will allow individuals aged between 18 and 40 to simultaneously save for both the purchase of their first home and their retirement. The ISA will work similarly to the current Help to Buy ISA, in that savers will be granted a 25% bonus on their contributions when used to purchase all, or part, of a new home (up to a maximum property value of £450,000 nationwide), with a maximum annual contribution limit of £4,000.
However, savers will not be limited in how much they can contribute each month and in addition to this, money withdrawn after the account holder’s 60th birthday will also enjoy the same bonus and can be used for any means. Savers will be able to receive their bonus on contributions made up until their 50th birthday, leaving the possibility to make a maximum individual contribution of £128,000 which would be matched by the government to a value of £32,000. Partial withdrawals from the account for other uses before the age of 60 will be allowed but will not benefit from the bonus or any interest upon it and incur a 5% charge.
Help to Buy ISA
With much of its function being replicated with the new Lifetime ISA, it was also announced that Help to Buy ISAs will be made unavailable to new savers from the 30th November 2019. Savers who opened a Help to Buy ISA before this date will be able to keep saving into the account, but they must claim the bonus by 1st December 2030. However savers waiting for the Lifetime ISA to launch should be aware that it is possible to open a Help to Buy ISA and then merge it with a Lifetime ISA when it launches in April next year. It is also possible to have both a Help to Buy ISA and a Lifetime ISA but individuals will only be able to benefit from one of the bonus payments when used to purchase a property.
Helping savers plan for the future
All in all this was a good budget for ISA savers, but we must not also overlook the significant reforms which have taken place since the New ISA (NISA) was introduced in April 2014 and which remain unchanged, including:
- Increased flexibility – savers can divide their ISA allowance between Cash ISA and Stocks and Shares ISAs in whatever proportion they wish, especially welcome news for those who want to use their entire ISA allowance for cash savings which had been previously capped.
- Increased ISA transfer potential – savers can transfer from a Stocks and Shares ISA to a Cash ISA, or the other way around. Previously, transfers from Stocks and Shares ISAs to Cash ISA were not permitted.
- Tax-free interest in Stocks and Shares ISAs – interest is now earned tax free in a Stocks and Shares ISA whereas previously, with the exception of a Cash ISA, any cash held within the Stocks and Shares element of an ISA was subject to a 20% charge on the interest earned – paid to HMRC.
- Withdrawals permitted – since last year savers may now withdraw and replace money in the same tax year, without it counting towards their annual ISA allowance provided that it is paid back in to the account by the end of the financial year in which the withdrawal is made. Previously money taken out of an ISA lost its tax free status, meaning that additional payments would count towards your allowance for that year.
- Junior ISA flexibility – those who have taken out a Child Trust Fund (CTF) for their child are now permitted to convert the fund into a Junior ISA.
- Passing on an ISA allowance – married couples can pass an extra ISA allowance, equal to the value of their ISA savings on death, to their surviving spouse. This means that couples can now pass the ISA tax breaks to each other however, passing the ISA tax status from parent’s to children is still not permitted. When the surviving partner dies, they will continue to fall inside the family estate for inheritance tax purposes.
Combined, these ISA reforms give savers every opportunity to plan for the future, regardless of their stage of life.
Fair Investment View
Commenting on the Budget, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited said: “Along with the changes made to existing rules surrounding ISAs in the last two years, the 2016 Budget’s announcement of several new types of Individual Savings Account means that individuals may now utilise their personal ISA allowance with far greater flexibility than ever before, spreading their allowance between a variety of savings and investment plans to meet their needs.”
He continued: “But perhaps the most significant move is the increase to a £20,000 ISA allowance in 2017. Remember that just 2 years ago, the allowance stood at just £11,880, with a boost from 1st July of that year to £15,000. This recent announcement sees the limit rise from £11,880 on 6th April 2014 to £20,000 on 6th April 2017, a rise of £8,120 in just 3 years. This means that a couple could save up to £30,480 during this current tax year, increasing to £40,000 from 6th April next year, offering the potential to accrue considerable sums within their ISA accounts in a relatively small timeframe. Good news indeed for savers.”
For more information, see some of our most popular ISA pages below:
Click here for our Top 10 Investment ISA Plans »
Click here to compare our selection of Cash ISAs »
Click here to compare our selection of Investment ISAs »
Click here to compare our selection of Share Dealing and Self-select ISAs »
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.
The introduction of our Plans of the Month series was to let savers and investors know where others are putting their money and to give us a chance to spot competitive plans which may have fallen under the radar. Our new and existing customers gain regular access to some of the best plans available in the market and so knowing what has proved popular with them during the previous month across both savings and investments can be useful.
Savers and investors
The plans featured are spread across five different categories, two capital protected savings plans and three investment plans:
- Fixed rate bond Plan of the Month
- Savings alternative Plan of the Month
- Income investment Plan of the Month
- Growth investment Plan of the Month
- Kick Out investment Plan of the Month
By covering traditional fixed rates bonds, FSCS protected savings alternatives, and income and growth investments, the categories aim to cover a range of options for both savers and investors, whether seeking either income or growth.
Current ISA rules mean that any income or growth received within an ISA is not then subject to tax, whilst recent changes mean you are now able to hold all of this in either Cash or Stocks & Shares and you also have the freedom to switch from one to the other and vice versa. With the current allowance at £15,000, ISAs can now play an even more prominent role for both savers and investors which is why wherever possible, each plan listed will be available both in and outside of an ISA as well as accepting ISA transfers. Please make sure you check the individual plan details first though to check.
With the halfway point in the tax year upon us, why not take this opportunity to review your ISA planning whilst you still have plenty of time to do so. We can all be guilty of leaving things to the last minute and since the changes to the ISA rules give us all a significantly increased allowance, this really should be a top priority for all savers and investors to carefully review any existing ISAs as well as the range of options open to them. To help you act and act fast, our head of savings and investments, Oliver Roylance-Smith, has put together his Top 10 ISA tips, so there can be no excuse for missing out on valuable tax-efficient returns well before the end of the tax year…
Tip 1 – Maximise your ISA allowance
Recent changes to the ISA rules which took effect on 1st July mean that your ISA allowance for 2014/15 tax year is now £15,000, making this latest increase to the ISA allowance the largest since ISAs were introduced in 1999. Remember that this allowance is per person, so a couple can invest up to £30,000 in total this tax year. We will have to wait until the Autumn Statement to find out if the ISA allowance will increase for the next tax year but on the assumption that it at least stays the same, that’s a total of £60,000 between a couple that could be invested in ISAs in a little over six months.
Since the changes to the ISA rules took effect, we have seen many new and existing customers putting the maximum £15,000 allowance into their ISA, clearly seeing the importance of keeping any income and growth from the tax man/ keen to make the most of this valuable tax break. Remember though that this latest increase to the allowance includes any ISA contributions between 6th April 2014 and 30th June 2014.
As we move toward the end of August and thoughts of the summer months start to move towards Autumn, we take a look at what has been a very busy time of year for investors. British summer officially started on 21st June and with a competitive range of income and growth investments plans on offer, we bring you our five most popular plans so far this summer.
Income remains top priority
As you might expect, with savings rates continuing at uninspiring levels and many savers inevitably looking to take on more risk in the hunt for higher returns, income features heavily in the summers most popular plans. However, there are also some compelling growth stories with a defensive strategy around the FTSE as well as the seemingly ever-popular Kick Out plan, currently offering the potential for double digit returns.
Both savers and investors have also benefited from the greater freedom for ISA transfers, because since 1st July you can move from a Cash ISA to a Stocks & Shares ISA and vice versa. These plans have also been particularly popular with ISA investors using the new £15,000 ISA limit.
1. 5.64% fixed income each year, monthly payments
Nothing seems to be able to keep the Investec Enhanced Income Plan from taking top spot at any time of year and the summer is no exception. Our ISA season best seller continues to a top performer with the current issue paying a fixed annual income of 5.64%. The plan pays monthly (paid as 0.47% each month) regardless of what happens to the FTSE. Capital is at risk if the FTSE falls by more than 50% during the investment term. If it does, and the Index also finishes below its starting level then your original capital will be reduced by 1% for each 1% fall, so you could lose some or all of your original investment.
Fair Investment view: “Knowing exactly how much you will be paid, when and for how long are clearly features which have struck a chord with both savers and investors and the monthly payment frequency is a popular feature. Without the need to pay tax if held within an ISA, this plan also offers an attractive opportunity to use your New ISA allowance to receive a fixed and regular tax free income.”
Click here for more information »
Fixed term investment plans that have the ability to mature early or ‘kick out’ each year seem to be popular whatever the investment climate but particularly so when the market is at historically high levels. The Enhanced Kick Out Plan from Investec currently offers the highest rate of any kick out investment based on the FTSE 100 Index which helps to explain why this plan is proving so popular both with our existing customers as well as new investors. We take a closer look at the plan and review the risk versus reward on offer to see how this might make for an attractive opportunity in the current investment climate.
Investors looking to gain a broad exposure to the UK stock market often look to investments linked to the performance of the FTSE 100 Index. But with the Index continuing its run at historically high levels, many investors find it difficult to decide whether now is the right time to invest or not.
Investors considering their options are often split down the middle – on the one side are those who feel confident that the Index can break through the 7,000 point barrier and keep going, and then there are those on the other side who remain uncertain that the market will continue to rise at a pace.
The FTSE 100 Enhanced Kick Out Plan from Investec is proving particularly popular with both existing customers and new investors. Many of our existing customers have investments that have matured recently or are likely to mature early in the coming weeks providing them with the opportunity to consider new investment opportunities and many have considered this plan. For new investors, the headline rate of 10.50% is also proving a compelling opportunity in the current investment climate and has been particularly popular with those using their new £15,000 ISA limit – so how does the investment work?
It’s not only the performance of our athletes at the Commonwealth Games that has been sizzling this summer, as there are clear signs that the savings market is beginning to hot up by offering more competitive rates and bringing some much needed innovation. In the first of a two part feature, we let you know which savings accounts are also performing well this summer by giving you our selection of summer sizzlers from the best the market has to offer.
Inflation and interest rates keeping us on our toes
But it’s not just the athletes that are being talked about. Inflation had been expected to come in around the 1.60% but instead the Consumer Price Index grew by 1.90% in the year to June, the largest increase for almost 2 years. It also means that basic rate taxpayers need to earn at least 2.38% just to break even, higher rate taxpayers over 3.16%.
However, although the increase hands the Bank of England even more ammunition for a rise in interest rates, most economists are in agreement that rates will start to rise next year – or perhaps at the end of this year but that a sharp and sudden rise is extremely unlikely with a slow and limited increase expected. However, things can change and change quickly, so the bottom line is that whatever happens, you need to be aware of the implications of inflation and the impact interest rate rises may have before deciding which route to take.
Savings accounts – what’s hot?
Regardless of how long you can tie up your money, from instant access to long term savings alternatives, there should be something here for everyone including guaranteed fixed rates, rates that can increase with interest rate rises, as well as savings alternatives which offer the potential to beat rising inflation.
Research from the financial services regulator, the Financial Conduct Authority, recently stated that loyal bank customers are not being rewarded and are experiencing lower rates on their savings compared to those who shop around. Their research showed that while the average interest rate on an instant access account opened in the last two years was 0.8%, accounts that were opened more than five years ago offered just 0.3%, the effect of introductory bonuses ending being one of the main culprits.
Savings Maximiser is a cash management service that compares the best buys from across the market and by regularly reviewing your accounts and making switches if a better rate is available, aims to secure a consistently competitive rate of interest. Aimed at those who want to retain instant access to their money at all times and have at least £25,000 to keep on deposit, the service offers full banking facilities and is simple, secure and saves you time. With the ever increasing number of savings rates on offer, the pace of changes to market leading rates and potential interest rate rises on the horizon, this could be a perfect time to consider this service.
Click here to find out more about Savings Maximiser »
Short term savings – 1 Year Fixed Rate Bond, 1.95% AER
With predictions pointing to a base rate hike above 1% unlikely until 2016, one year fixed rates are proving popular and for those who are able to tie up their money and are also looking for a fixed and regular rate of interest, Investec Private Bank is offering 1.95% AER on their 1 Year Fixed Term Deposit. The minimum deposit is £25,000 and interest can be paid annually or monthly, the account can be set up as a single or joint account and access to account information is online or via telephone. As with most fixed term accounts, no early withdrawals are permitted. You can apply online, request further information to be sent to you via email of have someone from the bank call you back directly.
Click here to find out more about the Investec 1 Year Fixed Term Deposit »
Medium term savings – 3 Year Base Rate Plus, 2.60% AER minimum
Investec has also shown some welcome innovation in the market with their 3 Year Base Rate Plus. The account pays 1% AER/variable above the Bank of England Base Rate but with a minimum rate of 2.60% AER, so whatever happens you know you will never earn less than this. Interest is not compounded and will be paid into your nominated account annually. No early closure or withdrawals are permitted.
The Base Rate Plus account offers innovation for savers by combining a competitive minimum return that is fixed, along with the potential to benefit from any increase to the Bank of England Base Rate for those who think it could perhaps rise quicker than currently expected.
Click here to find out more about the Investec 3 Year Base Rate Plus Account »
Medium to long term savings alternative – potential 5.25% each year, from year 3
For those prepared to tie in for the longer term but who would like the opportunity for their plan to mature early, the Kick Out Deposit Plan from Investec offers the potential to mature from year 3 onwards. The plan offers a potential 5.25% per year (not compounded) and will mature early or ‘kick out’ provided the value of the FTSE 100 at the end of each year from year 3 onwards, is higher than its value at the start of the plan (subject to averaging) – even by just one point. That’s a potential 15.75% after 3 years. If the Index is lower on all of these dates you will only receive a return of your initial deposit.
Our leading 3 year fixed rate bond is paying 2.65%, with lower rates available for fixing within a Cash ISA. So if you’re looking for new ways to use your savings and are prepared to sacrifice a guaranteed return, this plan could provide almost double the current fixed rates on offer.
Click here for more information about the Investec Kick Out Deposit Plan »
Long term savings – 5 year fixed rate bond, 3.11% AER
The additional premium for committing your savings for the longer term has narrowed recently and yet the demand for this length of fixed rate is still high. Vanquis Bank’s 5 Year Fixed Rate Bond is currently offering 3.11% AER with a low minimum deposit of £1,000 and you can apply online. There are annual or monthly interest options but no withdrawals are permitted.
Click here for more information about the Vanquis Bank 5 Year Fixed Rate Bond »
Long term savings alternative – maximum 40% growth return
For those looking for the potential for higher growth and are prepared to tie their money up for the longer term, the Defensive Supertracker Deposit Plan from Morgan Stanley offers a number of features that savers might find attractive. Firstly, your return is linked to any rise in the FTSE 100 Index over the term, which is then doubled (subject to a maximum return of 40% of your initial investment) and secondly, the rise is based on any increase above 95% of its starting level. So even if the FTSE ends the same you would receive 10% (2 x 5%), and if it rose by 10% you would receive a 30% return (2 x 15%). If the Index finishes below 95%, no growth return would be paid and you will only receive your initial capital back.
Finally, your initial deposit is protected whatever happens to the FTSE and is also eligible for FSCS protection – Lloyds Bank plc is the deposit taker for this plan. Our leading five year fixed is offering 3.11% AER, so if the FTSE rises by over 15% at the end of the term, you could more than double the leading fixed returns on offer, but if it only goes up a little or falls, you would have been better off with a fixed rate.
Click here for more information about the Morgan Stanley Defensive Supertracker Deposit Plan »
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AER – Stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek professional advice.
Some of these plans are structured deposit plans that are capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.
With probably the most talked about Budget for many years and finally one that has gone the way of savers, we give you a 60 second guide to the changes around ISAs and what this will mean for both cash savers and investors.
New tax year, new limits
From 6th April 2014, the annual ISA investment limit for 2014/15 will initially rise by £360 to £11,880 (of which up to £5,940 may be in cash). The limit for the Junior ISA (JISA), which is beginning to attract more investors, will simultaneously rise to £3,840.
More radical reform
From 1st July 2014, more radical changes will occur:
- All existing ISAs will become new ISAs (NISAs), removing the distinction between Cash and Stocks & Shares ISAs
- The maximum you can save into a NISA will rise to £15,000 for the 2014/15 tax year, a further increase of £3,120
- The rule which prevents more than 50% of the total limit being placed in a Cash ISA will be scrapped and so the entire £15,000 NISA contribution limit can go into cash deposits.
- The ban on transfers from Stocks & Shares ISAs to Cash ISAs will be removed, thereby introducing full two-way transferability between deposits and investments and vice versa.
- Investment options will be widened to include, for example, peer-to-peer lending.
- The JISA limit will rise to £4,000 and this will also apply to Child Trust Funds (CTFs). The date from when CTFs can be transferred into JISAs was not brought forward and remains, provisionally, April 2015.
Following consultation with various stakeholders, the Treasury has announced that savings kept in a Child Trust Fund (CTF) will be transferable to a Junior ISA from April 2015 – much to the relief of many who had hoped for such an announcement in the 2013 Autumn Statement and were disappointed when this failed to materialise.
A better deal for young savers with Junior ISAs
Up to 6.1million children stand to benefit from this change, which will see them able to take advantage of the benefits offers by Junior ISAs such as better returns on their investment, lower charges, and a wider choice of products.
Junior ISAs were introduced in 2010, following the closure of the Child Trust Fund Scheme. Up to £3,840 per year can be put into a Junior ISA without tax being paid on any interest or gains. When a child turns 18, the Junior ISA account automatically becomes an adult account.
If you’ve got children, it’s natural to want to plan ahead for their future – to help them pay for education, their first home, a gap year, or other major expenses. Until recently, Child Trust Funds were one of the most widely-publicised options. Launched by the Government in 2002, families received up to £500 in public money to invest per child. However, this programme was scrapped in 2011 with the cost of the Government contribution proving too heavy.
Modelled on their better-known adult counterparts, Junior ISAs were launched in November 2011. Currently, parents, grandparents, relatives and friends can deposit up to £3,720 a year in a junior cash ISA, a junior investment ISA, or a mixture of the two. All growth and interest earned is tax-free.