Having celebrated their tenth birthday in April this year, Individual Savings Accounts (ISAs) are no longer the new savings kids on the block. In fact, up until this year's Budget, many will have argued they probably weren't ageing very well.
Introduced in April 1999 as a replacement for the now defunct Personal Equity Plan (PEP), ISAs were designed to get the man on the street saving. The incentive of tax free savings has certainly been successful, with recent figures suggesting there are now more than 10 million ISA accounts in the UK holding in excess of £80 billion worth of funds. Yet, despite their apparent popularity, in some quarters a feeling still existed these faithful friends were beginning to look a little bit tired.
Before this year, the only time the ISA contribution limit had been raised was in April 2008, a paltry £200 increase, taking the maximum to £7,200, was nothing to write home about either. However, come the Budget in April earlier this year, a Government desperate to stimulate savings after interest rates hit rock bottom announced that another, more significant change to the allowance was to be made.
As a result, the ISA limit is to be raised to £10,200, of which up to £5,100 can be saved in a cash ISA. When this can be taken advantage of, however, depends on the age of the investor. The new limits apply from 6 October this year for those over 50, and then from 6 April 2010 for all others.
The stage is therefore set for a new lease of life, but the hangover from the downturn still lingers. Markets might currently be on the up, but stocks and shares ISAs remain the riskier option. Meanwhile, interest rates on the safer haven of cash ISAs appear to have turned a corner and are gradually edging their way higher.
Considerable differences can exist between the rates available from various providers, making it vital to compare ISAs and the potential returns that they offer. However, having reached one landmark anniversary already, it seems the ISA is now set to rule the savings landscape for another decade at least.
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Author: Graeme Knights