While, in the short term, it could be argued that the introduction of the PSA means that ISAs will lose their main selling point - a place where people can save completely tax-free - that is perhaps short-sighted. It’s important to think longer term because, while you may be comfortably within your personal savings allowance at present, that situation could change. If and when interest rates start to rise, the £1,000 allowance may get eaten up more quickly than it is at present.
It’s not just the savings market that may impact your situation; a change in personal circumstances could also have an effect. For example, a pay rise at work could change what tax bracket you’re in, which in turn would impact your annual personal savings allowance. This is because higher-rate taxpayers get a lower allowance, and those on the top-rate (45%) don’t get any allowance at all.
It’s not just the here and now where I think ISAs are an option because spouses can inherit their partner’s ISA allowance upon death, whereas the new personal savings allowance can’t be inherited.
Also, from 6 April, the Government is allowing providers to offer flexibility on ISAs. So, with some providers, you’ll be able to replace money withdrawn from some ISA products during the same tax year, without impacting your annual ISA allowance. Any withdrawals need to be replaced before the end of the tax year though and you can’t carry forward any unused ISA allowance from previous years - so it’s a case of use it or lose it!
So, while the introduction of the PSA is certainly one of the biggest changes seen in the savings market for many years and will mean the vast majority of savers across the country will be able to save tax-free, the reasons outlined above are just some of the points why I think ISAs remain an option. I would encourage people to take the time to consider which account best suits them.
1 What counts as savings income?