As the end of the tax year gets ever closer, it is expected that more and more people will open or top up their ISAs before they lose this year's annual ISA allowance forever. However, with different types of ISAs to contend with, it is easy to get confused with what's on offer and, most of all, what offers you the best return for your savings.
1. Use it or lose it - cash ISAs are saving consumers £680 million in tax over the year
Although ISAs have been available for quite some time now, we believe that around two thirds of eligible people do not have a cash ISA and only 1 in 7 has a stocks and shares ISA. Many consumers are therefore not taking advantage of their full ISA tax break and, what's more, once a new tax year begins, the previous year's annual ISA allowance is lost forever.
2. Understand your attitude to risk - cash, stocks and shares, or both?
Savers have varying attitudes to the risks they are prepared to take with their money for greater potential returns. Before committing to any ISA, a saver should consider their attitude to risk, their own individual circumstances and the return they are looking for on their savings. And, depending on what they are saving for - for example a rainy day, emergency funds or a wedding - attitudes to risk and return for those different pots of their money may differ.
3. Consider all options - 2009 was the best year for stocks and shares ISA since 2001
When it comes to building a balanced financial portfolio, getting the combination right is important and only by considering all options can your financial needs be met. Although cash ISAs are the most popular, stocks and shares ISAs, are increasing in popularity. In 2010 stocks and shares ISAs saw sales reach £3.9 billion, their best year since 2001. There could be a number of factors for this, with one of them being the low interest rate environment making stocks and shares more attractive in comparison to standard savings accounts. Unfortunately, too many customers stop once they have used their cash ISA allowance and fail to take full advantage of their full£10,200 allowance so ending up paying tax on the interest they earn on their remaining savings. Whether an individual should take out a stocks and shares ISA will depend very much on their attitude to risk, but for many it is the easiest way to start investing in equities.
4. Need a regular income from your savings and investments?
Some savers - especially those who are retired - like to receive an income from their savings and investments.
5. Upcoming increased allowance is great news for savers - from £10,200 to £10,680
The fact that ISA allowances will continue to rise each year is great news - more savers will be able to save more of their money without the taxman getting their hands on it.
Overall, I think the run-up to the end of the tax year is an exciting time for those looking to invest in an ISA. Unfortunately, there are still a large number of eligible people without an ISA, so my biggest piece of advice is simply: use it or lose it.
