Welcome to the new and improved Isa
Merryn Somerset Webb looks at the pros and cons of the 'New Isa', the bigger, better version of the tax-efficient savings wrapper that most of us know and love.
A survey out this week showed that 77% of UK adults have not yet heard about the new individual savings account' (Nisa). This rather suggests that 77% of adults don't ever quite make it to the money sections of their newspaper. Last weekend, every single one ran a feature on Nisas the bigger, better versions of the tax-efficient Isa savings wrappers that most of us know and love. If you are one of the many who got distracted by the sports and review sections, what exactly is it that you need to know?
There are three key points. The first is that from 1 July the Isa limit will move from £11,880 to £15,000. The second is that you will be able to move the money inside your Isa wrapper in and out of cash and investments at will for the first time. The third is that any interest received on cash in equity Isas waiting to be invested will no longer be taxed (up until now it has been subject to a 20% tax). You could see all this as part of the financial repression plan yet another way (along with rock-bottom interest rates) to encourage us all to dump cash and buy into other assets. But either way it introduces a fantastic new flexibility into the way we can save.
There are still minor complications. If you have already opened a cash Isa this year, you can't open another to take your total up to £15,000. However rubbish the rate on the one you already have, you must top this one up or move it to a new provider and top it up once that is done. The same goes for equity Isas you can only open one wrapper a year. But the key for most MoneyWeek readers, I suspect, will be that we can now move cash held inside equity Isas and being paid almost nothing in interest into cash Isas paying slightly higher rates of interest when we feel a bit nervous about the markets.
The problem is administration. I don't want to have to move money from one provider to another. I want my current equity Isa providers to come up withcash alternatives that pay reasonable rates of interest inside their organisations. Right now that isn't possible. The Fidelity Cash Park currently pays a pathetic 0.1% on Isa cash balances. Hargreaves Lansdown has a cash Isa on which it pays 1% (the Nationwide Regular Saver pays 2.33%), but it pays somewhere between absolutely nothing and 0.1% on cash held in its Vantage Isas.
My hope is that platforms take this change in the Isa rules as an opportunity to help their customers cut down on their administration by introducing new cash-equivalent products, or by raising all these rates. That way we won't have to bother moving our money to other places.