Savers looking to invest the full £15,000 in New Isa accounts (Nisas) could see an increase of more than 160% in interest paid on their savings.
While cash Nisa rates are yet to be announced by providers, even if there is no improvement on the cash Isa rates currently available, those who choose to put the full allowance in a cash Nisa from 1 July will be able to make some staggering returns.
According to number crunching by Andrew Hagger of money website MoneyComms, assuming savers were able to deposit the full Nisa allowance of £15,000 into the existing Nationwide two-year fixed-rate Isa – which has an interest rate of 2.05% – the tax-free interest they could earn would be £307.50. That's up 160% from the £189.42 they can earn by saving the current maximum allowance of £5,760.
Similarly, saving £15,000 into the Halifax's 18-month fixed-rate deal would generate £300 in tax-free interest – £184.80 more than currently possible. With the National Counties Building Society account, you would earn £162.63 more.
The returns on longer-term fixed-rate deals are even better. The Coventry Building Society's three and a half year fixed deal will give you £412.50 at an interest rate of 2.75% - an improvement of £254.10, while Halifax's four-year fixed rate at a rate of 2.40% will bring in an extra £221.76 of interest.
The reform to Isa accounts, announced in the Budget - which merges cash and stocks and shares Isas into a single account and allows savers to decide how much of the £15,000 allowance they want to hold in either – has been welcomed by industry experts.
Freedom of choice
Head of saving at Halifax, Richard Fearon, said: "These changes are far reaching, creating greater flexibility, and giving people more freedom of choice in their financial lives. It's welcome news that we believe could substantially boost the UK's savings culture.
He explained: "People will be able to choose how much of their allowance to have in cash, and how much in stocks and shares, while being able to move funds freely between the two. This addresses a key issue – our research shows that four out of five people currently saving in an Isa only use the cash component, so they are effectively not using half of their allowance. Under these new rules savers now have the flexibility they need to make use of the full, expanded Isa allowance, saving up to £15,000 a year.
He added that the increase in the limit will benefit all income groups, not just the well off, as "our research shows that half the people currently saving the full cash ISA allowance are on incomes of less than £20,000".
|PROVIDER||INTEREST RATE||ANNUAL INTEREST ON £5,760||ANNUAL INTEREST ON £15,000 WITH NISA|
|Santander - Direct ISA Saver 6||1.60%||£92.16||£240.00|
|National Counties Building Society||1.76%||£101.37||£264.00|
|Nationwide Building Society||2.05%||£118.08||£307.50|
|Coventry Building Society||2.75%||£158.40||£412.50|
|Skipton Building Society||3.00%||£172.80||£450.00|