Savings: A warning about the ‘nicer’ ISA


Warning tapeSavers were delighted and surprised when it was announced in the Budget, that the maximum contribution into a Cash ISA (Individual Savings Account) will rise to £15,000 from 1st July.

But there’s a sting in the tail, which could mean savers miss out on sheltering £9,060 from the taxman.

Missing out on the new ISA limit

The ISA limit will rise part way through the tax-year, on 1st July, creating a problem for savers.

From 6th April 2014 the maximum savers can pay into a Cash ISA is £5,940; this will rise to £15,000 from 1st July. Savers who contribute the maximum amount into a Cash ISA now, and who want to top-up when the limit increases in July, need to ensure that the bank or building society they use will allow them to do so.

The problem applies particularly to Fixed Rate Cash ISAs where top-ups are not usually allowed.

Each bank and building society will have different rules:

  • Some will not allow any top-ups whatsoever after the initial contribution. As you can only contribute to one ISA each tax-year, this will mean you will be able to shelter less money in a tax-free account
  • Some will allow you to top-up the Cash ISA, but won’t guarantee to offer you the same rate of interest
  • The more generous banks and building societies, for example Santander and Nationwide, will give you a period of time when you can top up the Cash ISA and get the same rate of interest as you did when you opened the account

Savers who want to top-up their Cash ISA in July need to make sure they understand the rules before they make their initial ISA contribution, otherwise they could end up paying tax on savings, which they are unable to shelter in an ISA.