Tax-free saving accounts making sense

When we’re all a little older and wiser, our thoughts occasionally turn to the future. We might wonder what we’re going to do when we retire, what our careers have in store and how we plan to fund our golden years. Many of us, sensibly, choose to save a little money for when we’re ready to quit the world of work for good. If you are like me, then you have been ramping up your extra income so that you can beat your financial goals just a little more quickly.

People have all sorts of reasons for saving money in their life. As well as retirement, we might want to save for a deposit on a new home, for a new car, luxury holiday or even to provide for the kids. However, when saving money, there might be a few things you worry about such as:

• Having enough to live on when retiring
• What rate of interest to expect with different types of savings account
• How much, if anything of your savings will be taxed

A taxing question

Tax is something many people might worry about as far as their savings are concerned. In many cases, savings are usually tax deductible, but it’s possible to save money without having to pay too much (or even any) levy on the money which you’ve worked so hard to save over your lifetime.

Arguably the best type of savings account in terms of tax efficiency out there at the moment is the ISA. How they work is that access is limited to money stored in them until a certain date. At the same time, they have higher than normal interest rates and are either low-tax or tax-free. While the tax and interest levels are favourable, access is something of a problem, even in emergencies.

The best of both worlds?

Cash ISAs differ from regular ones in one or two different ways. Typically, the interest rates are ever so slightly lower, but are mainly exempt from tax, meaning all your hard-earned money is yours to keep. A spokesperson from Yorkshire Building Society said “YBS Cash ISAs are designed for money that you may wish to access in the short or medium term to suit different needs. Once you've invested up to your maximum allowance for the tax year, we have other savings options for your short and longer-term savings goals.”

“With us you can transfer your old ISAs with just two simple steps and we’ll do all the paperwork for you. Switching could really make a huge difference to the amount of interest you’re earning and, using our Savings Rate Checker, we can tell you quickly and easily what rate your current ISA provider is giving you.

“That way, you can make sure that you’re getting a good deal and if not, you can switch to us. A mutual building society you can trust owned by and run solely for the benefit of our customers, who are our members”, the spokesperson added.

If it sounds like a good idea to you, here’s what you could consider before making a decision on other savings options:

• Think about where you want to invest your ISA money – it could just be resting in your account or could go into stocks and shares
• Consider the annual ISA allowance. According to Yorkshire Building Society, it’s currently £11,520 per annum
• You can save up to £5,760 a year without paying tax in a cash ISA