Cash ISA Guide for Over 50s

     Benefits of new Cash ISAs for over 50s

Most of us have become familiar with cash ISAs (Individual Savings Account) since they were introduced back in 1999 to encourage healthier savings habits. The advantage of cash ISAs is that you’re not taxed on the interest you receive, meaning that they can offer some of the best savings rates for over 50s.

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With an eye towards encouraging even more saving for our future years, sweeping changes were made by the government in July 2014 when the NISA (Cash New ISA) was introduced. These changes allow you to save up to £15,000 in cash in your ISA account each year, and all of the interest you earn will be protected from taxation.

With the recent changes in ISA rules and the new cash ISA limit, it’s worth savers taking a look again at the best cash ISA for them.

“ Remember that If you’re over 65 you’re not required to report interest from your cash NISA on your tax return, so it isn’t included in your age related tax-free income. ”

Why have Cash ISA rules changed?

Cash ISAs previously had a smaller annual saving limit of £5,940, but pressure from groups representing the over 50s has been building since the Bank of England dropped the base rate so dramatically. Over 50s savers were getting the bad end of the deal as statistically they have more savings and less debts than younger adults. Quantitative easing forced interest rates to historic lows and the the Funding for Lending Scheme provided banks with a cheaper source of money, meaning that they had less need to entice savers, allowing them to keep rates low. The NISA has been introduced to improve matters, and has been welcomed by group representing over 50s savers.

Are cash NISA rates improving?

The NISA has been available since July 2014, but while the increase in annual allowance has been applauded by over 50s savers and the financial industry, the influx of cash has not been met with any marked increases in the rates on offer.

Looking into the best ISAs for over 50s? What are you saving for?

This might sound obvious but with such a wide range of offers on the market it pays to make sure that the deal you select is the most suitable for your needs. The right ISA to save for your grandchildren’s future university fees isn’t going to be the same as one to pay for a retirement trip in six months. The difference in interest rates is largest between the fixed term and open access cash ISAs, so if you are saving for the long term and have other funds for emergencies then you may well want to look at the longer term deals on offer. If you’re just looking for somewhere to put your pension lump sum until you decide what to do with it, then an open access ISA is a safer choice.

 

Shop around for the best ISA rates

It pays to shop around with everything these days, but it’s especially important with your savings as your financial happiness in the future can depend on making the correct decision today. When you’re over 50 it’s even more important as you’ve likely built up larger ISA accounts over time, and so a higher interest rate will make a larger difference to you. There are also some providers such as SAGA who now offer specialised NISAs as well as some of the best savings rates for over 50s: which gives you more options when shopping around.

There are a range of providers from the major high street banks to  small building societies that you may never have heard of and they will all have different offers on over 50s savings accounts, ISA rates and more. Many of the smaller building societies such as Skipton Building Society and the Cheshire Building Society frequently top the tables of best rates as they don’t have the same funding options as banks and so have to attract saver’s deposits to be able to operate efficiently  It can be difficult to keep up with the smaller providers, so check out our comparison page which helps you to compare cash ISAs for over 50s and make sure you’re aware of all the options out there.

 

Fixed term NISAs

A Fixed Term NISA can look attractive as on first glance they will usually offer the highest interest rates available. However there are potential downsides to using them and it’s important to be aware of these before you take out one of these accounts. There’s usually a penalty applied if the funds are withdrawn from the ISA before the end of the specified time period. In addition, what looks like a great rate today may not look so impressive if interest rates increase in the future and your stuck on a fixed rate.

The best ISA rates for over 50s at the time of writing (for fixed term NISAs) include 2.00% AER from the AA for 2 years or 1.55% AER from SAGA. For the most up to date fixed rates on offer you should check the provider’s websites or use our cash ISA comparison page.

Open Access NISAs

Whilst an open access NISA is unlikely to be at the top of the tables in terms of headline rate, the added flexibility of being able to pay in up to your allowance or make withdrawals is more important to many savers than the difference in rates that they could get with a fixed term ISA. In addition, if interest rates do start to increase then it’s possible to take advantage of this with this type of account. The best rates on offer for open access NISAs include 1.55% AER from BM savings and 1.55% AER from the Post Office, but as before these change all the time. Check our comparison page or the provider’s website to find the most current cash ISA interest rates for accounts you’re interested in.

Switching to a new NISA

Virtually all interest rates are offered for a set time, and the interest rate offered after this period has expired will be dramatically lower. A current example is the Halifax ISA Online which will pay 1.25% AER for the first year then drop to 0.25% AER after that. Banks and building societies hope for ‘inertia’ and that customers will not be active enough to switch, leaving their ISA in an account which paying a lower interest rate. The good news is that it’s very easy to switch to a new ISA with better rates.

All you need to do to switch your ISA is to open the new ISA of your choice and then in many cases you can just give them the account details of your existing ISA, letting your new provider do the rest. There are some providers who don’t offer this service, however; in this case all you need to do is get an ISA transfer form from your existing provider and enter your new account details. Remember that you shouldn’t withdraw the cash yourself as you will then lose the tax protected status.

You can only open one NISA in each tax year but you can switch any existing ISAs to NISAs to take advantage of the some of the best cash ISA rates.. If you prefer to have more than one ISA available or perhaps have one fixed term and one open access, that’s also possible.

Alternatives to cash ISAs for over 50s

Whilst the NISA has strong advantages for many savers, there will be some who will benefit from other offerings in the tax efficient market. Stocks and Shares ISAs can offer the potential for greater returns over the long term, but remember it’s at a higher risk. Pensions have the advantage of tax relief on the money paid in, which an ISA does not, however this must be balanced against the fact that income from pensions is taxable which isn’t the case with income from an ISA.

If you’re not confident about the type of tax efficient product that suits your needs then it’s always best to seek the advice of a qualified independent financial adviser.

Remember, the new cash ISA and similar savings accounts are supposed to be a way of saving that’s suitable for both the short and long term, so make sure you’re clear on what you need the savings for (and for how long) and you’ll be in a better position to find the right type of account for you. Cash ISAs offer some of the best low risk savings rates for over 50s, and with the amount saved plus tax-free interest earned compounding every year, it’s well worth the time taken to stay on the best rates.

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