The Chancellor George Osborne may come under pressure to increase the amount that people are able to save tax-free in this year’s Autumn Statement.
Although inflation has been on its way down in recent months, it remains difficult to find many savings accounts that enable you to secure real returns without locking up your money for long periods.
One way to avoid paying tax on savings is through Isas (individual savings accounts) but individuals are currently limited to saving £5,640 per year in a cash Isa.
The total Isa limit is £11,280 per year, but if you want to save the full amount, at least half of that must be placed in a stocks and shares Isa, which means investing your money in more risky assets.
Chancellor asked to review cash Isas
A number of banks and building societies have now called for the Chancellor to use the Autumn Statement to scrap the restrictions and enable people to put their full allowance into cash Isas and benefit from tax-free returns in low risk accounts.
Earlier this year Which? research found that cash Isas were no longer paying much better rates than standard savings accounts despite their tax-free status. In 2000, the difference between the average cash Isa and savings account was almost 2.8% but by March this year the gap had shrunk to 0.5%.
Despite that, cash Isas are an effective way to build your savings up over time and an increase to the amount you can pay in each year would be a boost to savers. The government is likely to try and resist the calls though, as any additional tax free savings would come at a cost to the Treasury.
Best rate cash Isas
The best rate you can get on an instant access cash Isa at the moment is 3.06% (including a 1.05% bonus payable for a year) from Manchester Building Society.
Marks & Spencer Money and Post Office offer the top one-year fixed-rate Isa, paying 3.10%. If you’re willing to tie-up your money for five years then you can earn 4% tax free, with Halifax currently topping our best rate tables.