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28/09/2009 17:23:29

Making the most of the Isa increase

As the economic crisis rumbles on, many people are likely to have found their finances have taken a battering. With saving rates plummeting as the base rate remains at a record low and unemployment surging, keeping on top of money may prove to be a much more difficult task than in the times of economic boom experienced a few years ago.

However, while many Britons may be concentrating more on their short-term financial situation at present, taking steps to prepare for the future may still be recommended.

There are a number of ways this can be done, including placing money into pensions and fixed-rate bonds. Another route consumers may wish to consider is an individual savings account (Isa). With such schemes allowing people to save money on a tax-free basis, they can offer significantly better returns than other - tax-deducting - accounts. And with the maximum savings limit set to be increased next month for those over the age of 50, now could be an ideal time to consider the benefits of an Isa.

From next month, those who were born either on or before April 5th 1960 will see their saving allowance raised. In measures announced by chancellor of the exchequer Alistair Darling in the April Budget, it was revealed that from October 6th the top saving limit for Isas will be raised from £7,200 to £10,200. Of this figure, half - £5,100 - can be invested in a cash-based Isa, compared to the current £3,600 that can currently be tucked away. Those who are yet to reach their half-century will still be able to benefit from the Isa increase, which is set to be extended to the wider adult population from the start of the 2010-11 tax year.

By taking full advantage of the rise, price comparison site uSwitch.com points out that each over-50 can earn an additional £32 of tax-free interest every year. And with more than 21 million Britons over the age of 50 it was suggested a total of £677 million in extra interest could be generated over the next 12 months.

However, despite the significant financial benefits on hand from the savings increase, research from the Lloyds Banking Group reveals many people may not be set to take advantage of this. Indeed, the organisation reveals that two-fifths of the over-50s are unaware that such a rise is even due to happen. Meanwhile, just 15 per cent of those questioned can correctly point out exactly what the new limit will be.

"This historic low rate environment has meant a challenging time for savers, especially for those who rely on returns to supplement their monthly income, so maximising your full tax-free allowance has never been more important," Colin Walsh, managing director of savings and investment for the Lloyds Banking Group, states.

Meanwhile, uSwitch.com has put forward the particular benefits that the forthcoming increase can have with regards to saving for retirement, especially in the current financial climate. The firm points out that as a quarter (24 per cent) of pensioners are currently relying on returns from the stock market as a means of funding their retirement, if the economy does not suddenly rebound "these people could be really disappointed".

Indeed, as 37 per cent of the over-65s believe they will have to work until the age of 77 in order to have a financially-comfortable retirement, the price comparison site puts forward the benefits of saving into an Isa over a traditional pension when making provisions for later life.

"Isas are progressively being regarded as an alternative or additional route to the traditional private pension pot - and with greater parameters for saving providing more interest and more tax-free benefits - this a route that more and more consumers should be considering," Rumina Hassam, savings expert for uSwitch.com, states.

And as a number of banks and other financial services firms prepare to modify their savings rates ahead of October 6th in a bid to persuade people to invest their cash with them, the range of deals and offers could be overwhelming for some. However by seeking guidance from a qualified financial adviser, savers - regardless of their age - could find they are able to access the Isa deal most suitable for their needs.