George Osborne increases ISA allowance to £20,000

Wednesday’s Budget 2016 revealed changes to ISAs that mean savers will now be able to invest up to £20,000 a year in an Individual Savings Account (ISA) from April 2017. George Osborne has been keen to promote savings in recent Budgets and the latest shift can be seen as further evidence of government support for UK investors.

The new ISA allowance is able to be allocated to Cash ISAs or a Stock & Shares ISA or a combination of the two. After freezing the ISA allowance at £15,240 for two consecutive years, this above trend increase in the allowance is a welcome move for savers and investors wanting to shelter their hard earned savings from the tax man. George Osborne’s sharp rise in the ISA allowance may be a vote winner but the real impact may be limited as headline rates offered by banks in the low interest rate environment are not something to get excited about.

Despite the increase in the ISA allowance, savers may not be enthralled by low interest rates offered by many banks for Cash ISAs, making a Stocks & Shares ISA a more attractive option for savers seeking a higher yield achievable by individual shares and mutual funds. Those choosing a Stocks & Shares ISA should be aware of the higher risks compared to a Cash ISA that come hand in hand with the potential higher returns.

ISAs are heavily marketed by banks and stockbrokers as rules enacted by HMRC now make it easier than ever to switch your ISA provider in search of a better deal. Although rules are now promoting greater competition in the ISA market, charges and commissions offered by some institutions are still somewhat opaque and difficult to understand, leaving many investors unsure of how much they are being charged and what for.