Investing in ISAs 'more important than ever' in current financial climate

16 March 2009 / by Rachael Stiles
During an economic crisis, taking advantage of the tax haven offered by ISAs is "more important than ever," according to accountants Old Mill Financial Services.

Old Mill Financial Services is urging consumers not to let the opportunity pass them by to shelter their savings from the taxman, as in the current financial climate their money will have to work harder for them.

Simon Cole, chartered financial planner at Old Mill Financial Services, said that most people fail to take advantage of their full ISA allowance, which, in effect, amounts to "giving money back to the taxman."

Even though interest rates are not at their most competitive right now, investing in an ISA still makes "good financial sense," Mr Cole continued.

ISAs (Individual Savings Accounts) are an initiative set up by the government to encourage people to save, using the incentive of allowing people to save up to £7,200 tax-free each year. All of this can be invested in a Stocks and Shares ISA, or up to £3,600 can be deposited in a Cash ISA and the remainder invested in stocks and shares.

"ISAs offer tax breaks for both higher and basic rate tax payers because you pay no capital gains tax, and no additional income tax making it one of the most tax-efficient ways to save and invest," Mr Cole explained.

"In fact, given the level of Government borrowing at the moment, the likelihood is that tax will go up as the treasury needs to create revenue through tax. A way that the individual investor can do something to avoid some of these rises is by making use of any tax breaks they can."

And, Mr Cole added, once this tax year is over and another begins on April 6, it is time for investors to start thinking about investing their 2009/2010 allowance.

For those who have already invested their maximum ISA allowance

for this tax year but are unhappy with the returns they are getting, Mr Cole recommends that they compare ISA deals and switch to a better one.

But, while Cash ISAs are not bringing in great returns at the moment, Mr Cole suggests that investors consider transferring their money into a Stocks and Shares ISA instead, where they might stand more chance of seeing their investment grow over the long-term.

"When rates are high, you can get fairly good income and growth from a Cash ISA with little or no risk," he said, "but now, it is hard to get the same returns unless you are prepared to take on a little more risk.

"Although Stocks and Shares ISAs do have more risk, they also offer the potential for higher returns over the long term, and now, with stock markets so low, it could be a good time to invest," advises Mr Cole.

© Fair Investment Company Ltd