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Top Up Early and See your Cash and Shares ISAs Grow

Personal_Finance / ISA's May 31, 2007 - 11:08 PM GMT

By: Nationwide

Personal_Finance

ISA holders could earn an additional £594 million by topping up at the start of the tax year

Nationwide Building Society estimates that people in the UK could receive an additional £594 million on their savings and investments by topping up their existing Individual Savings Accounts (ISAs) at the beginning of the new tax year, rather than at the end.


The new tax year starts on the 6 April and adults in the UK are allowed to save or invest up to £7,000 in ISAs. In order to give any savings or investments the best possible opportunity for growth, Nationwide advises people to top up at the start of each tax year or to make regular contributions throughout the year.

Nationwide estimates that:

  • If the 11.8 million people who hold a cash ISA were to pay the full £3,000 into their account at the beginning of the tax year – rather than a traditional savings account - they would receive an additional £354 million in tax-free interest.*
  • If the 4.5 million people who hold an equity ISA were to top up on 6 April – rather than invest in a traditional savings account - they would save £240 million in tax.**

Stuart Bernau, Nationwide's executive director, said: “We recently announced that savers could be paying more than £500 million extra in tax by failing to use their full annual ISA allowance, but this is not the only way people could be missing out. By failing to top up their ISA at the start of the tax year, people are losing out on the chance to see their money grow to its full potential. And for those with high interest paying accounts, such as our Fixed Rate ISA Bond which offers a guaranteed interest rate of 5.85% for one or two years, this can make a big difference to their account balance come the end of the ISA season.

“Understandably, not everyone is in a position which allows them to use their full ISA allowance each year but we would encourage anyone who has some money to put aside – even if it is just a few pounds here and there – to save or invest in an ISA and avoid paying tax on the proceeds.”

For further information:
Roy Beale , 01793 655689
Sue Knight , 01793 655196

Notes

* At March 2006, 11.8 million people held mini cash ISAs (source: Mintel June 2006). If all of these customers paid £3,000 into a cash ISA at the beginning of the tax year, rather than at the end, they would receive an additional £354 million in interest compared to a traditional savings account (assuming a 5% interest rate and a basic rate of tax at 20%).

** There are 2 million maxi equity ISA holders and 2.5 million mini equity ISA holders in the UK (source: Mintel June 2006). If all of these maximised their equity ISA allowances (£7,000 maxi and £4,000 mini) they would contribute £14 billion and £10 billion respectively. If this combined £24 billion were to be placed in a traditional savings account (assuming an interest rate of 5%) it would earn £1.2 billion in interest. Assuming a basic rate of tax at 20%, £240 million would be paid in tax. If this money were to be placed in an equity ISA this tax would not be payable.

Existing ISA holders could earn £594 million more on their accounts by topping up early. If all 33.8 million people aged over 16 who do not currently hold an ISA were to pay £3,000 into a cash ISA - rather than a traditional savings account - at the beginning of the tax year, they would receive an additional £1.014 billion in interest (assuming a 5% interest rate and a basic rate of tax at 20%).

Savers can invest up to £7,000 in Nationwide's ISAs each year:
Option 1: up to £3,000 in cash and up to £4,000 in equity ISA
Option 2: up to £7,000 in equity

Nationwide offers:

Fixed Rate ISA Bond
5.85% gross p.a/AER for balances of £1 and over. One and two year terms available.

Members' ISA Bond
5.40% gross p.a./AER for balances of £1 - £9,999
5.45% gross p.a./AER for balances of £10,000 - £24,999
5.50% gross p.a./AER for balances of £25,000 and over

Instant Access ISA
5.10% gross p.a./AER for balances of £1 - £9,999
5.15% gross p.a./AER for balances of £10,000 - £24,999
5.25% gross p.a./AER for balances of £25,000 and over

Nationwide Equity ISA
Choose from a range of five investment funds to be held in an equity ISA ‘wrapper':
High Income Fund, Target Return Fund, Balanced Fund, Tracker Fund FTSE All Share, UK Growth Fund
No initial charges
Invest from £20


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