Update: 6 May 2015: The information below about how ISAs work is still correct, although the rates have changed since this story was written. In October last year, the Government also launched a consultation on how to include peer-to-peer lending in ISAs. As of 6 April 2015 you can save £15,240/year in an ISA while surviving spouses can now inherit their deceased partner's ISA. See our Top Cash ISAs guide for the latest best buys.
Savers will be able to put £15,000 a year into a cash ISA from 1 July, Chancellor George Osborne announced in today's Budget.
The Government will create the New ISA (NISA) with a £15,000 limit to make the system "simpler". You can use the full limit for either cash, investments or a mix of both (see our Full ISA Guide for more info on how these work).
The current ISA limit, until 6 April is £11,520. But only half of this, £5,760, can be cash. The whole chunk could be used for investing, though.
For Martin's full view on the ISA changes, see his editorial comment: Will you really gain from the new NISAs?
How will NISAs work?
From 1 July, you could choose to pay in:
- £15,000 to a cash NISA and nothing to a stocks & shares NISA.
- £15,000 to a stocks and shares NISA and nothing to a cash NISA.
- A combination of amounts between a cash and a stocks & shares NISA, up to the overall annual limit of £15,000.
- You can only open one cash NISA and one stocks and shares NISA to put new money into each tax-year. But you can also open other NISAs to transfer old ISAs into. This is the same rule as for current ISAs.
Money saved via peer-to-peer lending firms will also qualify for a NISA. But the Treasury says this is unlikely to happen before 2017, as it requires a consultation first.
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What about ISAs opened between 6 April and July?
The amount you can save in an Isa will rise, as planned, from 6 April to coincide with the start of the new tax year.
So you'll be able to save a maximum of £11,880, up to half of which (£5,940) can be put into a cash Isa
Any ISAs opened between 6 April and 30 June will automatically become a NISA, with a higher limit. From 1 July, you'll be able to add further money up to the new £15,000 limit.
Will I be able to transfer between cash and investments?
You can already transfer existing cash ISAs into stock and shares ISAs, but not the other way round. From 1 July, you'll be able to move money both ways.
You'll largely be free to move as much as you want between the types of account. There's one exception if you're moving from investments to cash, as anything deposited between 6 April and 30 June 2014 must be transferred as a whole.
Are NISAs any good?
MoneySavingExpert.com creator, Martin Lewis, says: "Finally, the nation's savers have been listened to. Many will be delighted to be taken out of paying tax on savings. While it's a good long-term gain, dig through the current numbers and the advantage of increasing the cash Isa limit from £5,940 to the new NISA limit of £15,000 isn't as big as many will think.
"This is because you can't ignore the fact that cash Isa rates are at all-time lows. Even last year the best buy easy access deal was 2.5%, now it's 1.65%. So last year, if you saved £5,760 at this rate, a basic rate taxpayer would have earned £144 a year – a tax gain of £29.
"At current low rates, even in the best deal with £15,000, you'd earn £248 and the tax gain is £50 – a gain, but just £21 a year more, far less than the huge increase in the allowance."
For Martin's full view on the ISA changes see his editorial comment: Will you really gain from the new NISAs?
Here's how much you gain in a NISA with one of today's top paying easy-access Isa rates, compared with an ISA:
|2013 top Isa rate of 2.5% (i)||2014 top Isa rate: 1.65% (ii)||NISA 1.65% rate (iii)||NISA tax gain compared to 2013|
|Basic rate payer||£29||£20||£50||£21|
|Higher rate payer||£58||£39||£99||£41|
|Figures rounded. (i) Based on £5,760 allowance. (ii) Based on £5,940 allowance. (iii) Based on £15,000 allowance.|
Should I wait until July to open an ISA?
There's no need to wait until July to open an ISA. You can open one now so your cash starts earning immediately, then top it up from July when it will automatically become a NISA with the new £15,000 allowance.
Even if you think there's a chance interest rates will improve by July, open a top easy access cash ISA now and you can transfer it to a better rate later on in the year as long as the provider accepts transfers.
What's happening to Junior ISAs (JISAs)?
Like normal ISAs, the current £3,720 allowance for JISAs can be used to save or invest. But unlike normal ISAs, you have a choice over how much of that total allowance you use in each. You can put as little or as much of the £3,720 allowance as you wish in each.
From 6 April, the JISA allowance will increase from £3,720 to £3,840. On 1 July, it will then rise again to £4,000.