New ISA offers £15,000 annual limit

Savers have an annual allowance of £15,000 as part of the new super ISA announced in George Osborne's Budget.

The Chancellor revealed that stocks and cash individual savings accounts (ISAs) will be merged into one single allowance of £15,000 from 1 July, in a move aimed at convincing long-suffering savers that the Government is 'on their side'.

He is scrapping the current rules which state that savers can only place half of their £11,520 entitlement into a cash Isa while being able to invest the whole allowance into a stocks ISA.

The move comes after mounting calls for ISA rules to be relaxed, with research published this week by Nationwide Building Society showing 1 in 8 (12%) people aged over 45 with a stocks and shares ISA have considered transferring the funds into a cash version even though they are unable to do so under existing rules.

New savings bond

Outlining his promise to help older people who have suffered from record-low interest rates for the past 5 years, Mr Osborne also unveiled a new savings bond for people aged 65 and over.

The savings bonds, which will launch next January, are expected to pay out interest of 2.8% over 1 year and 4% over 3 years.

It was also announced by the Chancellor that the 10% starting rate for savings income will be axed altogether to support the lowest earners, while NS&I premium bond limits will be raised from £30,000 to £40,000 this year and raised again to £50,000 in 2015.

'Hard working people keep more of what they earn and more of what they save,' he said.

'You've earned it and you've saved it and this Government is on your side.'

The new ISA - known as the NISA - will help approximately 24 million people who have the tax-free savings products, the Government said.

When it comes into effect, the NISA will offer an increase of £3,120, with limits rising to £5,940 for cash savings and the overall allowance including stocks and shares rising to £11,880 from April.

The move was welcomed by banks and building societies, with Nationwide seeing it as 'much-needed support for ordinary savers' while Halifax suggested it might 'substantially boost the UK's savings culture'.

However, Moneysavingexpert.com founder Martin Lewis sounded a note of caution as to the likely extent of the impact.

He said the benefits of the NISA would be greatly restrained by especially low interest rates available on cash deposits.

Mr Lewis calculated that for basic rate taxpayers investing the full £15,000, the additional tax gain from the increased limit would amount to just £19 a year more from the best deal on the market which pays 1.65%.

Copyright Press Association 2014