NISAs - How are they different to ISAs?
In the 2014 budget it was announced that we were going to be seeing a new type of ISA called the NISA. These are essentially the rebranded ISAs that have a new set of regulations and a few other changes.
These NISAs are still a savings account that comes with tax exemptions just like ISAs. These new accounts now offer a larger limit on the amount that you can put away in them. The new, revised amount that you can save is now £15,240.
The old regulations surrounding ISAs meant that the limit on the amount you could save had to be split across cash ISAs and stocks and shares ISAs. This meant that people who wanted to invest in the stock market were offered a better deal than those who wanted to just save with cash deposits.
Now the new laws allow you to move your stocks and shares savings into cash savings, alternatively you can just deposit the full £15, 240 into either stocks or cash ISAs. All that is required in order to do this is that you contact your ISA provider and make the relevant request.
What this means for those of us with savings is that we can put more money away each year that will be sheltered from taxation. This can be a viewed as a positive change because, generally speaking, the more money that you have put away the more money you will be able to generate through interest.
Do the low interest rates mean it's not worthwhile?
Even though interest rates are currently very low, setting up a NISA and adding to the amount saved in it each year is often still a smart thing to do. This reason for this is that, unlike with other savings accounts, the interest that you earn on an ISA will be taxed. This means that you should factor in the amount that you will be taxed whenever you're looking at savings accounts that are not ISAs. This is especially important for anyone who is paying the 40% tax rate as the amount that they will be saving on this money will be even higher.
It is also important to remember that interest rates do change, so it is unlikely that you will remain on the extremely low rates that are currently being offered. Most financial analysts are now expecting to see the Bank of England's base rate rise in 2016.
What this means in reality is that if you were to wait until next year to put some money away, you would only be able to benefit from having around £15,000 in tax free savings accounts. However if you were to deposit that much this year, you could then potentially have around £30,000 tucked away and benefiting from the rising interest rates.
What other choices are there?
There is no doubt that NISAs offer the best avenue in terms of tax-free savings options but there are plenty of alternatives that one could decide upon if they so wished. These options vary from regular savings account or current accounts to other forms of investment or NS&I savings and bonds.
The most popular choice of savings option that people go for is to open a regular savings account. These accounts allow you to deposit and withdraw money at you leisure but will generally not give as high a level of interest as some other choices. However there are some savings accounts that allow you to put your money away for five years without being able to access it and these generally offer higher levels of interest.
One tax free alternative to a NISA are NS&I savings accounts that are provided by the government. These government schemes are offered in quite a few different forms.
NS&I premium bonds are probably the most unique form of savings choice that you could choose to make. These bonds allow you to save up to £30,000 but offer do not offer you interest in the traditional sense, instead they enter you into a prize draw. This prize draw happens once a month, with prizes of up to £1 million up for grabs - although the average prize sits at around £50.