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About Me

Darren Winters is a self made investment multi-millionaire and successful entrepreneur. Amongst
his many businesses he owns the number 1 investment training company in the UK and Europe.
This company provides training courses in stock market, forex and property investing and since
the year 2000 has successfully trained over 250,000 people.

Friday, 4 July 2014

What You Need to Know About Super ISAs

It has been dubbed Britain’s biggest saving plan and it has undergone some major changes recently. Approximately 24 million Britons, half the adult population, hold an Individual Saving Account (ISA), which is a class of retail investments arrangements available to those residents of the United Kingdom. The principal advantage of an ISA is that savers are exempt from income tax and capital gains tax on the investment returns, and no tax is payable on money withdrawn from the scheme either. Cash and a broad range of investments can be held within the plan. Moreover, there is no restriction on when or how much money can be withdrawn. Payments into the account are made from net income earned.

Chancellor George Osborne’s sweeping changes to ISA, which came into effect on July 1, now means that ISA savers can invest more, pay less tax and decide where they invest. So under the new ISA scheme, known as super ISAs, the annual amount savers can now invest within an Isa per year rises to £15,000 from July 1, which is nearly treble the cash ISA limit of £5,940. Perhaps another and more significant change to ISAs from the beginning of this month is that the previous restrictions that could be saved in cash ISA accounts as opposed to stock market investments has been abolished, thereby giving savers freedom to exit out of equities should they wish to do so.

Indeed, the new rule now implies that a saver can sell all their existing shares held in their ISA account and transfer part, or all of the proceeds into an ISA cash accounts with different providers. This means that nervous investors who require access to the funds in the immediate or short term future, for say a deposit on a property or retirement could then move all or part of their ISA savings out of shares into cash.

Assuming the saver has started a new cash ISA this tax year with a building society, then decides to invest some of the extra allowance into a stock market fund. Under the new rules they would be entitled to open one cash and one stock market ISA per year. Moreover, the saver would be free to choose any provider of stock market ISAs and could invest up to £15,000 within the two ISAs.

So what if savers have locked in fixed-rate cash ISAs with their banks, say early in the year, would they then still be able to top up the same account to the full £15,000 from July? Apparently, this may be possible bearing in mind that fixed rate accounts, guarantee a set rate of interest over the agreed period and that interest rates have not varied much throughout the year, so many providers are allowing top ups at the agreed same rate.

But how will funds be transferred from a share ISA, which is managed by an investment house, to a cash ISA run by a different institution, such as a bank or building society. It’s very likely that the two separate institutions don’t share the same computer systems, have different rules and different administrative systems. This would mean that any transfer of funds from share ISAs to cash ISAs would probably have to be done manually. Currently savers can transfer cash ISAs from one building society or bank to another electronically, without much complications. Indeed, a transfer from one cash ISA to another takes on average eight days, which incidentally also happens to be the same time period required to transfer cash to shares.

However, the electronic transfer of funds from share ISAs to cash ISAs will not be possible in most cases and it doesn’t take much imagination to see that this could result in an administrative headache and delay for the saver. According to industry guidelines published just last week savers would have to wait up to a maximum of 26 working days (36 days in total) for their money to be moved from an investment ISA to a cash ISA. Additionally, during this delay in the transfer of funds the saver will not be entitled to any interest payments. Some industry experts believe that this week’s Super ISA launch is really a complete unknown, which could cause problems. If the volume of shares to cash switches is low then the system should be able to cope. Where the problem could arise is when savers are switching from shares to cash in masses, then things could get really clogged up, claimed an industry expert. Transfer requests sitting in mail bags for days on end and savers losing interest while their cheques are in the post and paperwork gone astray typifies the kind of problems that could arise. Nevertheless, transferring one cash ISA to another should still remain relatively straightforward.

ISA holders are advised to select the cash ISA that suites them best and to shop around for the highest interest rates. Should you decide to sell your investment ISAs, don’t leave the funds too long in your ISA investment account, as it will earn you little or no interest. The best payer of fixed rates at the moment is Virgin Money, which accepts transfers and new money. Savers also need to bear in mind that while cash ISAs don’t charge you penalties for transfers, investment ISAs do. In some case you might be charged up to £175 to leave and move to a rival firm.

However, despite some potential hiccups arising from the super ISA the saving plan is still being heralded by many as a major boost for savers, giving them more freedom to decide for themselves how and where to invest. Admittedly, the bank rates are so low that the cash brakes on deposits in ISA maybe worth next to nothing, thereby cancelling out the benefit of the higher allowance. So Super ISA may be just another super political sound bite. But what remains to be seen is whether savers will stampede out of equities into cash or vice versa. What happen here could then determine the future direction of equity markets.


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