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How to get the most from your NISA
Published 23 July 2014 by Hayley Cox
Thinking of opening one of the new ISAs? Here we have a couple of pointers to help you get the most out of your new tax-free savings account.
With the introduction of the New ISA (or NISA for short), now is a great time to start saving – that is if you haven’t already. This new and improved ISA now means you can save up to £15,000 tax-free, which is almost three times the limit of the cash ISA it replaces. If you are a taxpayer you have to pay tax on interest on the return you make in a regular savings account, but any money you save in a NISA (up to the £15k annual limit) will earn interest entirely tax free.
If you’re looking for a bit more information on NISAs, you can find out pretty much everything you need to know about them in one of our previous blog posts here.
But if you’ve got to grips with the idea and want to start saving for yourself, we’ve laid out a few helpful pointers to get the ball rolling.
Compare rates and restrictions
From your weekly food shop to mortgage rates, it usually pays to compare prices before committing to a purchase. The same applies here too, as different providers will offer different rates, introductory offers and deals, so you should try shopping around to find a NISA that’s suited to you and offers the best all-round deal.
It might seem tempting to stick with the same bank that provides your current account, but it’s a good idea to consider other providers as well. Sticking with the same provider may be an easy, convenient solution but they may not offer you the best rates, so you could save more money elsewhere. Websites such as moneysavingexpert.com, Gocompare.com and Money.co.ukcan help you to compare some of the best deals on NISAs.
You’ll be given the choice between a ‘variable rate’ and a ‘fixed rate’ NISA. While a fixed-rate NISA locks your money up for a certain amount of time – usually a few years – and typically doesn’t allow you to make withdrawals, a variable-rate NISA ties you up for less time and should allow you to withdraw your money and change deals more easily. However, interest rates for these could be lower.
In addition to this, you could consider getting a NISA with a lower variable-rate, so you’re not tied into it for too long. Although some lengthier NISAs may offer better rates, the interest rates across the board could improve quite substantially in the next year or so – which means it may pay to apply for a shorter fixed-rate agreement with a lower interest rate and reassess the market at a later date. However, there’s no way to guarantee the rates will be better than your current deal in a few years’ time, so it will ultimately come down to whether or not you want to take the risk.
Check how often you can top up your account
How are you planning on using your NISA? Do you have a large pool of savings that you want to deposit into an account and leave to gain interest? Or are you hoping to deposit regular payments into your account so it builds up gradually? Well, if you’re the latter, it pays to check the terms of your NISA before you sign up for it.
For customers lucky enough to have a big lump sum of cash that they can happily deposit into a NISA, it may not matter how often your provider will allow you to top up your account. However, if you’re hoping to make a deposit regularly or at several different times over the year, you should check if there are any limits on topping up your account. Some NISAs may allow you to deposit as often as you like for a period of time, yet others may only allow you to deposit funds once. If you’re unsure whether you’ll deposit more in the future, opt for a more relaxed NISA just in case.
So, before you apply for a NISA, it’s wise to try and find one best suited to your needs. Checking the terms of the NISA first – especially for withdrawal restrictions - can help to clear up any confusion. Some NISAs may allow you to withdraw your money as often as you like but offer a smaller interest rate, yet others might mean your money is tied up for longer – but this is usually in exchange for a higher interest rate.
A little could build to a lot
Even if you don’t feel like you have enough spare income to justify getting a NISA, saving just a little bit each month will still make a difference.
You might only be able to save £10 or £20 a month, but it’s worth doing this as the savings will still start to add up. Plus, you’ll get to gain tax-free interest on it if you put it into a NISA – so what is there to lose? Your NISA could provide a great rainy day fund, or even help to save for potential emergencies - like if your car or boiler breaks down.
Saving with thinkmoney
Saving money is something we wholeheartedly recommend here at thinkmoney. So if you’ve opened up a NISA or are planning to and you’d like us to help you budget by putting some money into your new NISA each month, just get in touch and we’ll be happy to assist.
If you speak to one of our Money Managers, we can set up a regular payment that goes straight into your NISA – the same way we budget your other outgoings. It couldn’t be simpler, and you can give us a call on 08444 155 155 to get everything set up.