The investment limit for individual savings accounts (Isas) is being boosted to £10,200 for the over-50s from next month, but some savers looking to top up their tax-free plans face disappointment, as not all providers will accept extra funds or match the deals on existing Isas.
The annual allowance increases by £3,000 from its current £7,200 from October 6 for individuals aged 50 or over this tax year. Those who have already taken out Isas since April can therefore potentially add to 2009/10 plans, up to the new thresholds. Of the £10,200, the amount that can be put into a cash Isa rises £1,500 to £5,100. The increase was announced in this year’s Budget with the aim of helping savers hit by low interest rates.
Some Isa holders could have already accumulated nearly £100,000 in these popular tax shelters if they had invested the maximum each year over the past decade in a stock market Isa. Even those who opted instead for cash Isas could have more than £45,000 in their accounts, according to Bestinvest, the adviser.
Topping up to the new limits should prove straightforward for most Isa accounts. But Egg, the online bank, said it would not accept the top-ups into its cash Isas, while Newcastle Building Society said savers who took out its recent 5 per cent Isa would only be offered rates of up to 3.25 per cent on top-ups.
Other societies, including Principality and Manchester, will only allow top-ups to fixed-rate Isas for a few weeks, while many structured product Isas – which offer returns linked to the stock market with capital security – are also expected to have restrictions on additional investments.
Chris Cole, senior client partner at Towry Law, the financial adviser, said that Isa providers might think next month’s allowance increase for older savers was “more trouble than it’s worth”. The £10,200 limit will not apply to savers under the age of 50 until the next tax year in April, creating what some providers said was, in the interim, an administrative “nightmare”.
There have also been fears that banks and building societies might only offer top-ups to fixed-rate Isas at lower rates, though this appears not to be the case for most providers.
Newcastle justified not allowing top-ups at the same rate as its 5 per cent deal, now withdrawn, because it said this could be unfair to savers in a similar fixed-rate bond which no longer accepts new funds.
However, Lloyds Banking Group – the biggest cash Isa provider which has brands including Halifax, Birmingham Midshires and C&G – and Santander, which owns Abbey, said they were allowing over-50s to add to existing fixed-rate Isas at their original interest rates. Nationwide said it would allow top-ups at its currently available fixed rates.
Moneyfacts, the savings analyst, suggested that Isa holders who were offered lower rates on top-ups should make a complaint on grounds of fairness. Savers with Isas that will not accept extra funds or which offer unattractive terms should also consider transferring to another provider.
David Black, banking consultant at Defaqto, the research company, said that where a fixed-rate Isa provider offered worse rates on top-ups, savers should ask for a waiver of the transfer penalties. However, before switching, they should first check that their new provider will permit top-ups.
Current cash Isas offer up to 4.6 per cent fixed over five years, and up to 3.01 per cent for variable rates. However, with stock markets making good gains, some experts said Isa holders should direct the full £3,000 increase into a share-based Isa.
