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Industry News

New ISAs

June 27, 2014
2 minutes read

Next month NISAs will replace ISAs, meaning new rules for the tax-free savings accounts. In March, George Osborne announced the introduction of NISAs – or New ISAs – as part of a major change to tax-free savings. The new rules take effect on July 14, but what are they and how can you make the most of them?

How do NISAs differ from ISAs?

As their name suggests, NISAs are a new incarnation of the ISA, or Individual Savings Account. The main difference is a significant rise in the tax-free savings allowance: the maximum amount you can pay in each year will rise from £11,880 to £15,000. Within that limit, savers will be free to put as much money as they like into stocks and shares or cash deposits, and to switch between the two.

So NISAs are more flexible…

Yes. ISAs only allowed savers to transfer cash into stocks and shares, but the new accounts allow transfers in either direction. Until now you might build up large amounts of money in a stocks-and-shares ISA, but you couldn’t switch it into cash and enjoy the tax benefits of a cash ISA. Now you will have the scope to switch from equities to cash and back as often as you like.

How profitable could a NISA be?

We would estimate that the scheme could allow savers to build a nest egg of £1m within 25 years. If you invest the maximum amount every year and your investments grow at a relatively modest 5 per cent annually, you will have £1m in 25 years’ time. The short-term rewards are equally appealing. Putting £5,940 into Tesco’s one-year fixed-rate ISA (paying 1.65 per cent) would earn interest of £98, whilst putting £15,000 into the same account would produce interest of £247.