Where to Invest Your £20,000 ISA Allowance

The annual tax-free ISA allowance was increased to £20,000 for 2017/18, and will remain at this level for 2018/19.

You, like many other investors are probably wondering where to find the best interest rates for your savings.

Rates have been increasing slowly on ISAs in 2018, but still lag some way behind fixed-rate bonds and current account rates.

However, the tax-free nature of the ISA means that it could be worth saving with these accounts, especially with larger sums. ISAs can be transferred between providers, and this takes on average 7 days, so it is worth taking this into account with the financial year ending on April 5th 2018.

ISA Allowances 2018/19

The ISA allowances for this year. The total allowance remains at £20,000, and you cannot exceed this sum.
ISA YearCash ISALifetime ISAJunior ISATotal Allowances
2018/19£20,000£4,000£4,260
£20,000
2017/18£20,000£4,000£4,128£20,000

Tax-free ISAs

Many fixed-rate ISAs have been at low rates for some time due to the still-low base rate, and many savers have been looking elsewhere for returns – but March and April is known as ISA season for a reason, and limited time offers may be available.

However, other options which do beat inflation exist, if you are prepared to accept additional risk.

These could be stocks and shares ISAs, or the new Innovative Finance ISA, which is also available in simple fixed-rates. Unlike cash isas, these new types of account are not protected by the FSCS.

A selection of accounts has been made below:

Virgin Money 5 Year E-ISA

  • Interest rate: 2.05 per cent AER
  • Minimum investment: £1
  • Fixed Rate Cash ISA
  • Protected by FSCS up to £85,000

Easy-access accounts

There are a number of new banks seeking to catch the eye of investors with competitive interest rates offered on easy-access accounts.

The rate is generally lower than fixed-rate accounts, but the added flexibility may be attractive if you need access to the funds within the year, or if it is for emergencies.

Virgin’s easy access Cash E-ISA is competitive, paying 1.21% AER.

Ford Money has increased the rate payable on its Flexible Saver to 1.12% for both new and existing clients.

Not to be outdone, Paragon Bank now offers its Limited Edition Easy Access 3 account that pays 1.15%.

However, the best deal is currently offered by Ulster Bank at 1.25% on its e-Savings account. Shawbrook Bank comes next offering 1.2%.

 

Beating inflation

Inflation is currently running at 2.6% (CPI), and although you can find regular savings accounts that pay better rates than this, you will be required to have a current account with the provider.

Customers who hold accounts with a HSBC Advance or Premier account, an M&S Bank current account, a First Direct current account, a Santander 123 account or a Nationwide Flex account can all access linked savings accounts that offer an impressive 5% interest, once you meet the criteria.

Those with Lloyds Bank’s Club Lloyds accounts can access a 3% regular saver account with their bank. However, all these accounts have limits to the amount holders can pay in each month, typically between £500 and £2,000

In summary

The recently increased £20,000 annual ISA allowance has seen a whole raft of other savings options for investors emerging from many smaller banks and a few of the larger providers too.

Wherever you decide to place your money, remember that rates can go down as well as up and always take the advice of a professional, experienced financial advisor before committing your money to an account where it will be tied in for the long term.

Zachary Wyatt

Zach lives on the coast in the UK, with one eye fixated on the City. Prior to his writing, he got his feet wet with forex trading platforms.