Are ISAs still revelant now we have a Personal Savings Allowance (PSA)?
The PSA was introduced in April 2016 and means basic rate taxpayers can earn up to £1,000 in interest every year tax-free, while higher rate taxpayers can earn up to £500. Additional rate tax payers aren't entitled to a PSA.
Some people could argue the PSA means most savers won’t earn enough interest to start paying tax, which challenges one of the main advantages of ISAs. If you’re a higher earner and/or you have a sizeable amount of savings, or if interest rates rise in the future, you could end up having to pay tax on the amount of interest you earn over the PSA.
The PSA is in addition to your annual ISA allowance, so the interest you make on your Cash ISA stays completely tax-free and doesn’t count towards your PSA. Any interest earned from funds already in Cash ISAs will also remain tax-free.
ISAs offer other advantages as well. After you die, your spouse or civil partner can inherit your ISA allowance and any ISA funds will also remain tax-free – this isn’t the case with standard savings accounts. You can find out more about this on our Additional Permitted Subscriptions page.
What about the Lifetime ISA?
We're currently the only provider to offer a Cash Lifetime ISA which is designed to help people buy their first home or save towards retirement. If you’re aged 18 to 39, you can open a Skipton Cash Lifetime ISA online and save up to £4,000 tax-free each year, up to and including the day before your 50th birthday.
The government pays a 25% bonus on your contributions, up to a maximum of £1,000 a year, but there’s a government withdrawal charge of 25% if you take out your money before you reach 60 for anything other than buying your first home.
Hopefully we’ve answered some of your ISA questions. Our specialists can help you explore your savings options – in branch, over the phone on 0345 600 5899 or on web chat.