How Will You Use New ISAs (NISAs)?

Written by Karen Bryan

uk notesWhen the New Individual Savings Accounts (NISAs) are introduced on 1 July 2014, adults will be able to put up to £15,000 a year into either tax-free Cash and/or Stocks & Shares NISAs.

I wonder if there will be such a high demand for Cash NISAs, between the more than doubling of the annual Cash ISA limit and people transferring out of Stocks & Share ISAs into ‘safer’ Cash NISAs e.g. when approaching retirement, that banks and building societies won’t have to offer competitive rate of interest to attract savers?

Until the change kicks in, the annual limit for Stocks and Shares ISAs is double that of Cash ISAs. After 1 July, you’ll be able to transfer either way between Cash and Stocks & Shares NISAs, at present you can only transfer one way from a Cash ISA into a Stocks & Shares ISA.

Scottish Friendly have produced a video explaining the New ISAs.

At present, I’m confused as to how the new annual limit is going to work for Cash ISAs during the transition period. Say I put the maximum of £5,940 permissible from 6 April 2014 to 30 June 2014 into a fixed rate Cash ISA on 6 April 2014. I assume that I could top this up by £9,060,  on 1 July 2014, as you are allowed to open one new Cash ISA in each tax year. However, what will happen if that fixed rate Cash ISA has been withdrawn before 1 July and not accepting any new subscriptions? Will the rules be relaxed for the tax year 6 April 2014 to 5 April 2015, to allow me to open two Cash NISAs?

Until now, we’ve viewed our Cash ISAs as long-term savings, which we may need to provide additional income during later years. We’ve generally selected fixed rate Cash ISAs of between 2-3 years duration to secure a higher rate of interest and because we wouldn’t need access to the money. We’ve never dipped into our Cash ISA savings, as we couldn’t later top up to the annual limit after making a withdrawal.

Looking to the future, we’ll probably change our Cash ISA strategy. There’s no way that we’ll be able to put £15,000 a year each into a long-term fixed rate Cash NISA. Once we have shifted all most of our long-term savings into Cash NISAs, we envisage using Cash NISAs to avoid paying income tax on shorter term savings. We could use an instant access Cash NISA as a home for money that I set aside for things like car depreciation, our emergency fund, income tax to be paid at a later date and the monthly spend on 0% interest on purchases using credit cards (to earn interest until the 0% period is over).

I doubt if we will put any money into a Stocks & Shares NISA. We prefer the security of a Cash ISA versus the risk but higher potential return of a Stocks & Shares NISA.