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6 ways to get the most out of your ISA

Make sure you don't miss out

6 ways to get the most out of your ISA

The 2017-18 tax year begins on 6 April. With the allowance increasing from £15,240 for the 2016-17 tax year ending on 5 April 2017 to £20,000 for 2017-18, now is a good time to check you’re getting as much out of your ISA allowance as you could be.

Here are six ways to get the most out of your ISA allowance.

The ISA allowance is increasing from £15,240 to £20,000 in 2017-18


1) Use your ISA as an incentive to start saving/save more

If you’re finding it hard to put away cash for the future or are looking for an incentive to do so, opening an ISA might be just what you need.

Even small savings add up – the important thing is to develop a habit of saving small amounts where you can. If you save just £3 a day, for example, it adds up to over £1,000 in a year.

To help you save more, set a goal – research by National Savings & Investments shows that people who do so save on average £550 a year more than those who don't.

You could set up a standing order to transfer money out of your current account and into your ISA, meaning you may not even miss the money going out.

Those who set a savings goal save £550 more a year

See our article "How to get into good financial habits in 2017" for tips on spending less.


2) Make the most of your ISA options

Recent changes mean that you now have more options when using your ISA allowance.

There are three types of ISA:

  • cash (including easy access, fixed rate, Help to Buy and – from 6 April 2017, if you’re aged 18-40 – Lifetime)
  • Stocks & Shares (which can also be invested in as part of a Lifetime ISA)
  • Innovative Finance (when you lend your money to other individuals or companies as a loan).

In the 2017-18 tax year you can have a Cash, Stocks & Shares, Innovative Finance and Lifetime ISA. However, there are a few limitations:

  • a maximum of £4,000 can be in the Lifetime ISA
  • some providers may allow you only to have a Cash ISA or Help to Buy ISA – not both
  • during the 2017-18 tax year, if you open a Help to Buy ISA you can transfer this to a Lifetime ISA, but the transfer will be included in your allowance for this tax year
  • some Lifetime ISA products will be offering Cash and Stocks & Shares ISA facilities in a single product.

You can transfer your money between the different types of ISAs – but remember, you can only subscribe to one Cash ISA, one Stocks and Shares ISA, one Innovative Finance ISA and (if eligible, and from 2017-18) one Lifetime ISA in each tax year, up to the combined annual limit.

There is also a cap of £4,000 on Lifetime ISA subscriptions (on which you will receive a Government bonus of 25% – see HM Treasury’s Lifetime ISA factsheet for more information). With a Help to Buy ISA you can invest up to £1,200 in the first month and £200 a month thereafter, giving a total of £3,400 in the first year; the Government will boost your savings by 25% – see HM Treasury’s Help to Buy ISA factsheet for more information.

Choosing what is best for you depends on your personal circumstances. You may wish to seek advice from an independent financial adviser.

A Cash ISA gives you tax-free returns that are not susceptible to stock market fluctuations

Cash ISAs: if you want the assurance of tax-free returns that are not susceptible to stock market fluctuations, a Cash ISA may be best for you. There are two types of Cash ISA to choose from:

  • Easy access – you are often allowed unlimited withdrawals (handy if you need frequent access to your savings). Some products may offer a higher rate but only allow a limited number of withdrawals per year before the rate reduces, so these may be ideal if you need only occasional access.
  • Fixed rate – you are usually only allowed withdrawals subject to a charge equivalent to a loss of interest. Interest rates are typically higher on these accounts and you have the security of knowing your interest rate is fixed for a given period (usually 1-5 years).

If you’re prepared to save for longer and are willing to accept an element of risk in exchange for potentially higher returns, you could consider a Stocks & Shares ISA.

Stocks & Shares ISAs are a tax-efficient way to invest in the stock market and can help protect you from tax on interest, dividends and capital gains.

Stocks & Shares ISAs are a tax-efficient way to invest in the stock market and can help protect you from tax on interest, dividends and capital gains

Although there’s always an element of risk involved, and you may get back less than you invest, investing gives you the potential to beat savings rates, meaning that over the long term you could grow your money more. Stock market fluctuations can take time to iron out, so as a general rule, you should be prepared to invest your money for at least five years.

With a Stocks & Shares ISA you can invest in a variety of funds and asset types, such as bonds, gilts, UK and overseas shares, allowing you to choose what meets your needs.

A Stocks & Shares ISA is a medium to long term investment so you should be prepared to invest your money for at least five years. Tax depends on your individual circumstances and may change in future.

Interested in investing?

Find out about our Stocks & Shares ISAs  Link opens in a new window

To say thank you for being a Virgin Money customer, we will give you £50 cashback  when you take out a Virgin Money Stocks & Shares ISA online. Terms apply.

Remember, the value of your investments can go down as well as up and you may get back less than you invest.


Help to Buy

Help to Buy ISAs: a Help to Buy ISA is a great way to save for your first home. As well as earning tax-free interest as you save, the government will give you a £50 bonus every time you put away £200, up to a maximum bonus of £3,000, payable when your house purchase completes.

You can save £1,200 in the first calendar month and £200 in every subsequent month.

If you’re saving for your first home with another first time buyer, you can both open a Help to Buy ISA.

When you buy your first home, the government pays the bonus you’ve earned to your solicitor or qualified conveyancer, who’ll use it to complete your house purchase.

You cannot save into both a Help to Buy ISA and a Cash ISA in the same tax year – you must choose between them.


3) Take advantage of ISA flexibility

Since April 2016, ISAs that are ‘flexible’ (typically those with no restrictions on withdrawals, such as easy access products) allow you to withdraw money from your account and put it back in without it counting towards your annual ISA allowance.

Previously, total deposits into an ISA over the course of a tax year could not exceed the total allowance – so if you saved up to the allowance limit and then withdrew £1,000, you would not be able to save any more into an ISA until the next year.

Check with your provider whether your ISA is flexible, and remember the money you withdraw must be paid into the account in the same tax year as the withdrawal or you will lose the ability to replace it.


4) Understand the potential benefits of ISAs over regular savings accounts

The introduction of the Personal Savings Allowance (PSA) in April 2016 means that basic rate tax payers no longer pay tax on the first £1,000 of interest they earn from regular savings accounts and many investments (the allowance is £500 for higher rate tax payers, and additional rate taxpayers don't receive an allowance).

But there remain a number of advantages to saving into a Cash ISA rather than a regular savings account:

  • The Bank of England base rate is at an historic low, meaning interest rates on savings accounts have also declined. At a current typical interest rate of 1%, you would need to save £100,000 before exceeding the £1,000 allowance. However, if interest rates returned to higher levels, then that would change. At an interest rate of 7%, a basic rate taxpayer would reach the £1,000 PSA allowance on just £14,285 – less than a year's ISA allowance. It might not seem an issue today, but in the longer term it makes sense to make the most of your ISA allowance.
  • Fixed-rate savings accounts mean you must lock your money away, whereas Cash ISAs are more flexible. Under Government rules you must have access to your Cash ISA savings, even on fixed rate accounts (albeit withdrawals may be subject to a charge).
  • Additional rate taxpayers don't receive a PSA, and so still need to save in an ISA to achieve tax benefits. Higher rate taxpayers only receive a £500 allowance, so would reach their tax-free limit on half the amounts cited in the examples above.
  • Surviving spouses can have an 'additional permitted subscription allowance' that equates to their deceased partner's ISA contributions as at the date of death (this point also applies to Stocks & Shares ISAs in addition to Cash ISAs).

5) Understand how to top up your ISA

Depending on the product, if you already have an ISA you may be able to top it up (up to the allowance limit – £15,240 for the 2016-17 tax year and £20,000 in 2017-18).

Many providers allow you to top up online, by phone or in person.

You can top up your Virgin Money Cash ISA in one of our Stores, by post or electronically - find out more.

It's easy to top up your Virgin Money Stocks & Shares ISA. You can make one-off payments and arrange to make regular payments via direct debit, online or by calling 03456 10 20 30*. You can also switch your money between any of our investment funds whenever you want, free of charge.


6) Understand how to transfer your ISA to a different provider

You can transfer your ISA to a different provider at any time. You can transfer:

  • a Cash ISA to another Cash ISA with a different provider
  • a Stocks & Shares ISA to another Stocks & Shares ISA with a different provider
  • cash from an Innovative Finance ISA to another provider (but you may not be able to transfer other investments from it)
  • From one kind of ISA to another, eg from a Cash ISA to a Stocks & Shares ISA (note that a transfer from a Lifetime ISA to another type of ISA will incur a charge).

During the 2017-18 tax year only, if you already have a Help to Buy: ISA you will be able to transfer the amount in the account on 5 April 2017 into a Lifetime ISA and receive the government bonus on those savings without the balance counting towards the £4,000 Lifetime ISA limit.

Transfers from previous years’ ISA contributions do not affect the current year’s overall ISA limit.

If you want to transfer money you’ve invested in an ISA this current tax year, you must transfer all of it. However, for money you invested in previous years, you can choose to transfer all or part of your savings.

Check with your provider for any restrictions they may have on transferring ISAs. They may also make you pay a charge.

To switch provider, contact the ISA provider you want to move to and ensure it’s able to receive deposits (some only allow transfers for a limited time after opening). Make sure you fill out an ISA transfer form to move your account – if you withdraw the money without doing this, you won’t be able to reinvest that part of your tax-free allowance again.

It should take no longer than 15 business days to transfer a Cash ISA, and 30 calendar days for a Stocks & Shares ISA or a Lifetime ISA.

Find out how to transfer an ISA to a Virgin Money Cash ISA

Find out how to transfer an ISA to a Virgin Money Stocks & Shares ISA


Still confused?

Watch our ISAs in Three Minutes video


The Virgin Money Stocks and Shares ISA is promoted by Virgin Money Personal Financial Service Limited and provided by Virgin Money Unit Trust Managers Limited (the ISA manager). Both companies are registered in England and Wales (Company numbers 3072766 and 3000482 respectively). Registered Office – Jubilee House, Gosforth, Newcastle upon Tyne NE3 4PL. Both are authorised and regulated by the Financial Conduct Authority.

 

Links to external websites are for information only. Virgin Money receives no income from them and accepts no responsibility for the website content. The information in this article is correct as at 08 March 2017.