Newspaper article The Evening Standard (London, England)

ISAs Are Still the Popular Choice for British Savers

Newspaper article The Evening Standard (London, England)

ISAs Are Still the Popular Choice for British Savers

Article excerpt

Byline: Lucy Tobin

F you don't use it, you lose it.

IThat's the rule for the annual individual savings account (ISA) allowance. And since normal savings accounts are currently paying interest at lower than 1%, the extra boost savers achieve from shielding cash from the taxman is more valuable than ever.

ISAs are already Britain's most popular savings product, with more money in them than pensions, according to the Office for National Statistics. Savers can add up to [pounds sterling]11,280 this year, with up to [pounds sterling]5640 in a cash ISA, and the same again for a stocks and shares ISA. That pot soon adds up. According to the stockbroker Killik, an investor who set aside the maximum possible allowance of [pounds sterling]203,760 in a personal equity plan (PEP) -- a predecessor to the ISA -- in 1987 could have an lump sum worth [pounds sterling]542,700 if each annual maximum contribution had been invested in the FTSE All Share index, and dividends were reinvested.

"The real benefit of an ISA comes from regular savings over a period of many years," says Daniel Aitkenhead, head of communications at Killik. "This smooths out both the highs and lows of market volatility. If a married couple invested their maximum joint ISA allowance [[pounds sterling]22,560 this year], assuming a 5% rate of growth each year would give a pot worth [pounds sterling]1.15 million in 25 years. That could be partly or fully encashed without being subject to either income or capital gains tax. As a pension pot, that could potentially generate a tax-free income of [pounds sterling]57,000 a year later in life."

That means ISAs are a savvy option for anyone looking for a home for spare cash. The tougher question is where to put the money. This year, the usual battle for savers' business isn't as fierce as in the past. Usually by now, banks and building societies are fighting hard to top the best-buy tables. But not this year. Interest rates have been low ever since the Bank of England slashed the base rate to 0.5% four years ago, and they've been hit further by the Government's funding for lending scheme. It's given banks access to cheap cash and taken away some of their need for savers' money. …

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