Personal Savings Allowance

From April 6th 2016, basic rate taxpayers (those with taxable income of between £17,000 and £43,000 a year) will be able to earn up to £1,000 in savings income tax free. Savings income means interest from banks and building society accounts, credit unions and National Savings and Investments. This is called the Personal Savings Allowance (PSA). Those earning between £43,001 and £150,000 will still have a Personal Savings Allowance of £500 per year.

ISAs and Savings Accounts

ISAs (Individual Savings Accounts) are tax-efficient savings vehicles. The allowance for the 2015/2016 tax year is £15,240 and this total can be invested in a cash ISA, Investment ISA or a combo of the two. This means you can invest up to this amount without paying a penny of tax on your interest. Great right? Well kind of. The best rate on an easy access cash ISA at the moment is 1.45%. That’s pretty rubbish.

I have a cash ISA but was so disappointed by the plummeting interest rate that I looked for something else. I found the Santander 1-2-3 account to be brilliant. It’s not actually a savings account, it’s a current account (so money is not locked in), but it pays 3% on balances over £3000 (just the sort of sum you might have earmarked for an ISA). There’s a £5 monthly account fee, but this can be offset by the cash back that the account gives you on many household bills. I really love it and it’s doing a lot more than my ISA. However, I, like other basic rate tax payers, am currently paying 20p in every pound on any interest I make.

Children and Saving

I’m trying to get my children into the saving habit. We’re currently doing the 365-day penny challenge, which you can read all about on my blog for Habyts.

Further information can be found at GOV.UK

Savings accounts for children

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Savings Accounts

If you don’t want to lock money away for a long period and are simply looking for a place to put birthday money, Christmas money and the occasional spare fiver, whilst getting some interest, then a simple children’s savings account is the way to go. You open the account in your child’s name but manage it yourself until they’re old enough to do it themselves. Children’s accounts usually pay higher rates of interest; a quick look on a comparison website is the best starting point. You’ll be able to see who gives the highest rate of interest and if there are any conditions attached such as saving a minimum amount each month, not having instant access or tying up the money for a fixed term of say a year. Check the features of the account carefully and then rate according to your needs.

Child Trust Fund

You may have heard of Child Trust Funds (CTFs). These were long-term, tax-free savings accounts for which the Government gave you a £250 voucher. I set up one for my eldest daughter. Sadly, the £250 contribution from the Government was completely stopped from January 1st 2011, and you can no longer set up a new CTF. Essentially, they were replaced with Junior ISAs.

Junior ISAs

Unlike a child’s savings account, you can’t dip into a Junior ISA (even if you do see an adorable little snowsuit in the sale). This money is locked in until your child turns 18. When they do hit this age the money is theirs not yours! Therefore think carefully before setting one up.

If you’re happy with the idea of not being able to get your hands on the cash, the next decision to make is what type of Junior ISA. You can have a cash one, a stocks and shares one (often referred to as an investment ISA) or both. The Junior ISA limit is £9,000 for the tax year 2023/24 (whether you have one or both types).

A cash Junior ISA pays tax-free interest on the money you save. It doesn’t have the potential for significant gains like the stocks and shares ISA. However, you won’t lose any money if the stocks you’re invested in take a tumble. With a stocks and shares Junior ISA your money is invested and you won’t pay tax on any capital growth or dividends you receive.

I set up investment ones for my twins with OneFamily (formerly Family Investments). I’m not too worried about the ups and downs of the stock market. This is a long-term investment and I fully expect that in the next 17 years the stock market will pay some very good returns.

There are many providers of both types of ISA. Comparison websites give a good snapshot and the GOV.UK website (https://www.gov.uk/junior-individual-savings-accounts) has a really useful section, which covers all the key facts.

A final note: I am not a financial expert, I am talking about my own experiences, so as with anything DYOR!

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