Maximising Your Tax-Free Benefits with the Best ISA Rates for over 50s

Individual savings accounts, or ISAs, are an excellent option for anyone wanting to boost savings. They work in almost the same way as a regular savings account, with the exception that any interest you earn is tax free.

You won’t pay any income tax on the interest you earn. You also won’t pay any capital gains tax on your interest earnings. If your goal is to increase your retirement savings, an ISA could be a great option for you.

Anyone over the age of 16 can open an ISA. However, you’ll find some of the best ISA rates for over 50s are often more attractive than those offered for younger account holders.

Cash ISA or Stocks and Shares ISA

Everyone in the UK has an ISA allowance each year of up to £10,680. However, if you’re depositing funds into a Cash ISA you are limited to a maximum of £5,340, while the remainder of your annual allocation can be invested into a stocks and shares ISA.

Keep in mind that there will be an element of risk with a Stocks and Shares ISA as compared to a Cash ISA. The interest you earn on a Cash ISA may give you a lower return initially, but it’s still a guaranteed return.

By comparison, the returns offered on Stocks and Shares ISAs are highly dependent on fluctuations in the share market. It’s possible the value of the stocks and shares your ISA has invested in could decrease. Of course, if the value of those equities increases, it’s also possible your returns could end up better than those you received on your Cash ISA. It’s important to determine your level of risk aversion and risk tolerance before choosing an ISA to suit your needs.

Deposit Your Allocation Early

If you have the funds available, deposit your entire annual tax-free allocation as early as possible. You’ll earn more interest overall by depositing a lump sum early than you would by depositing smaller amounts throughout the year.

If you wish to continue saving over and above the annual tax-free allocation limit, you can always open a regular savings account and keep your money there. The interest you earn won’t be tax-free in a regular savings account, but you may be able to transfer your cash into an ISA as a lump sum the following year to make the most of any extra money you’ve saved.

Savings Account or Cash ISA?

If you’re comparing the interest rates available, you may notice that some savings accounts offer higher rates than those offered on Cash ISAs. While you may earn a little more interest by putting your money in a regular savings account, you aren’t getting the tax benefits.

By comparison, putting your money into a Cash ISA allows you to take advantage of not paying any tax on the interest you earn. The marginally higher interest rate on a regular savings account may earn you more initially, but don’t forget you’ll be paying tax on any interest earnings.

You can still top up your savings using a regular savings account. Just be sure you’re maximising the tax-free interest you can earn whenever possible.

Regular Contributions

Not everyone has the available cash to deposit the entire annual allocation in a lump sum right away. If you’re still building up your savings and want to take advantage of tax-free interest earnings, you can set up an automated savings plan.

Many banks will let you arrange an electronic direct credit from your regular bank account to your cash ISA. You can nominate how much you want to pay into your savings each week or fortnight to top up your savings balance over time.

If you’re serious about really taking advantage of the best ISA rates for over 50s, you need to spend some time comparing the potential amount of interest you can earn on your savings. Shop around and make sure you’re getting a competitive interest rate on your savings and see if there are ways to maximise the interest you earn on your cash. Work out the tax-free component and compare the different accounts available before making your decision.

If You Had Expert Knowledge, Could You Pick the Best Shares to Buy and Make a Killing?

Each year, mutual funds tend to beat the stock market by narrower and narrower margins. If the stock picking management team behind a mutual fund does manage to put in a strong showing one year, it is nearly never able to repeat the trick a second time. Most mutual funds actually manage to underperform the market – their investors end up with lower profits than individual investors get simply by picking the best shares to buy from popular indexes like the FTSE. With almost nothing to show other than undependable performance, mutual funds usually still do charge very high management fees that tend to eat into whatever gains investors make.

What should you, the average investor, do, then? Should you pay a mutual fund a large management fee to pick the best shares to buy for you or should you pick the shares yourself by looking at a popular index and save on the management fees?

The “efficient stock market” theory proposes that beating the markets is impossible

If you’ve done a bit of reading on stock market behavior, you have possibly heard of something called the efficient market hypothesis – an idea floated in the 60s. The hypothesis proposes that investors always act rationally and pick stocks to invest based on the best information available. Since the same information is available to all investors, the market is supposed to arrange itself over time to give the best companies top pricing and the least efficient ones, the cheapest pricing.

This theory calls into question the idea that experts with special knowledge of the markets can pick winners. Since investors do indulge in buying and selling that constantly rearranges the market, the theory would imply that stocks in the market today are already priced the way they should be. There can be no predicting what stocks will go up or down as they are already where they should be.

The reality of the markets is different, though.

How markets act in reality

In practice, many investors base their decisions on insufficient, incorrect or outdated information. Many decide on the best shares to buy based on an investment style rather than purely logical methods. Some have an emotional attachment to stocks from a certain part of the country or a certain industry. Others base their decisions on rumors from the grapevine.

One reason why investors choose investment styles and gut instinct over real information is that there can be too much of it. Investment houses need to put entire departments of highly skilled staff with access to multiple streams of data to process everything necessary to make purely rational decisions about the best shares to buy. Individual investors and small brokerage businesses simply don’t have the time and manpower necessary for such data processing. In the US, one of the central aims of the Sarbanes-Oxley Act of 2002 was to help investors gain better access to information in a way that they could process.

Can you actually pick good shares to buy better than other investors?

Stock picking – the process of studying the market and using insight, statistics and knowledge to find winning stocks better than other investors – worked better when the stock markets were healthier. These days, well-trained stock pickers at major mutual funds fail to beat the results achieved by simple individual investors who simply put their money into stocks featured in the major indexes.

Mutual funds that fail to beat the markets, though, don’t actually perform worse than individual investors. Their management costs are simply so high that they end up with little profit. If you set the costs aside, most mutual funds do manage to beat the major indexes by at least a slim margin. People continue to invest in them, though, because each year, a few funds manage to beat the indexes by a healthy margin. Investors always hope that the fund that they choose may see such luck. Since the winning funds of one year end up losing their touch the following year, it can be very difficult knowing which one to pick.

3 Ways to Ensure That You Maximise Your Cash ISA Allowance for Greater Savings Potential

Trying to figure out how to maximise your cash ISA (Individual Saving Account) allowance should take place at the beginning of the year, rather than waiting until the last minute. This is particularly true for individuals who do not have easily accessible lump sums of cash at their disposal at any given time. If you want to get the most out of this type of savings strategy, then you need to learn how to optimise the opportunities it provides.

As you know, your cash ISA allowance is regulated by certain rules that specify exactly how much you can put into this type of savings account over the course of a single year. As long as you follow these guidelines and the suggestions included here, you should be able to maximise your profits quite nicely.

Maximise Your Full Cash ISA Allowance Each Year

Perhaps the most important reason to maximise on the amount of money that you contribute each year is the fact that you’ll end up with more money at the end of the tax year. It’s only logical that the more you put into it, the larger the sum of cash you accumulate will be.

One of the other reasons that you should try to put in the full tax allowance is that you don’t have to worry about paying taxes on your contributions. Unlike a regular savings account, all of the interest that you earn is tax-free, so you get to keep all of it. Again, the more you put into it, the greater your savings will be.

Since your returns are tax-free, it makes sense to put in as much as you can afford up to your full limit. For tax year 2013/2014, UK investors can place as much as £5,760 into their accounts. Of course, the amount for a junior account is less, and it is valued at £3,720. You should always use your full cash ISA allowance because you can’t rollover any unused amounts to the next year’s account. Take advantage of full tax allowance by putting in whatever you can afford whenever you can.

You should make sure that you get your money to work for you by putting it in as early in the year as possible. The earlier that you deposit your money, the sooner it will begin earning interest for you. If you wait until two months before the end of the tax year, your money is only going to earn interest during those two months. However, if you put it into the account during the first month, your money will earn interest for the full twelve months. If you are looking to earn money, then it only makes good sense to start as early as you can.

Start Now and Watch Your Money Grow

If you haven’t yet started to save by opening a cash ISA, it isn’t too late. You can begin whenever you like, but the sooner you start, the better your chances are to realise your full allowance. Plus, you don’t need to have access to a lot of money when you first begin to save. In fact, it is easy to get started, since you can open an account with a single pound. Yes, just one pound will provide access to an ISA of your own. So, if you start now with one pound and continue to deposit additional sums of cash, you will be able to watch your money grow now instead of waiting to accumulate a large sum to open up an account.

Top Off Regularly and Reach Your Full Cash Allowance Sooner

If you haven’t already been doing so, it is important to top off your cash ISA regularly if you want to have hopes of maximizing on your allowance. You should simply develop a regular habit of putting money into the account as regularly as you can. Don’t set your goal too high or you will experience disappointment far too often. Instead, create small, realistic goals that can help you to reach your larger goal of putting in the full allowable amount of £5,760 for 2013/2014.

If you are having difficulty getting yourself to make regular deposits to top off your account, why not consider setting up a standing order from your regular account? You simply select the amount that you want to transfer from your regular account to your cash ISA account and set it up so that the transfer repeats itself every month.