An overhaul of ISAs will come into effect tomorrow (2 July) which will allow savers to increase the amount they can invest and what they investments they can use. A name change will be brought in as well, with ISAs becoming New ISAs or NISAs.
The value limit for ISAs will rise from £11,880 to £15,000, an increase of over 25%. Also, you can now invest with cash, shares, or stocks in whatever combination. Previously there were restrictions on the amount of cash you could use to invest the maximum.
In regards to ISAs opened since the start of the new tax year, they can now be topped up to the new limit. The changes do not allow for a new one to be set up though.
All in all, NISAs will allow savers to be more flexible. At the moment around half of the adult population, or 23 million people, have already put their money into ISAs. The new rules will therefore allow a large section of the population to alter how they save their money.
The Chancellor, George Osborne, said: “We want to support savers at all stage of their life and make sure they have greater flexibility and choice over how they access their savings.” In the next Autumn statement, the Chancellor will also announce new limits for 2015/16.
The overhaul hasn’t come without its critics though. There are some concerns that NISAs will yield little and that the banks are not prepared for the change. But by far the biggest worry is that it could cause savers across the country to lose out.
According to a source who spoke to the Telegraph, the banks are expecting people to deposit over £1bn in the next 72 hours with it going up to £4bn during the rest of the month. There are fears that this will then cause interest rates to be cut and therefore yields from existing savings will fall.
This will come as little surprise to those who have had ISAs for awhile. Rates have been cut a total of 92 times since the last Budgets as providers attempt to gain any profit they can. At the start of the year, the average rate was 1.41%, that has now fallen to 1.23%.
Image by James Cridland.