From October of this year, people over the age of 50 will have the chance to top up their tax-free savings in Individual Savings Accounts (ISAs) as the limit is extended from £7,200 to £10,200.

The change will take place on 6 October this year for those over 50, however, everyone else needs to wait until April next year to see the same benefits.

The cash limit on the overall allowance will also be raised from £3,600 to £5,100 and the rest of the money can be invested in shares.

ISAs were introduced a decade ago by Gordon Brown who was then the Chancellor in order to try to encourage people to save money. Today around 18 million ISA accounts exist and around 5 million of those use the full allowance each year.

How Will This Affect You?

Until the changes come into force, you can currently have £7,200 in these accounts, and the maximum cash investment on this is £3,600. However, this will be increased to £10,200 and half of which can be a cash investment. This is expected to cost the Treasury £60 million in total by 2011-2012.

Many experts are welcoming this move. Catherine Ross for example has said that: “This is not a case of tinkering around the edges. For a lot of people a great deal of their savings will now fall outside od the tax net.”

However, Defaqto’s David Black has pointed out that unless interest rates start to rise again, the benefits this action could have are limited. Even at the best interest rates that are currently on offer, the change means that the increase in tax-free interest is only £54.15.

From the Building Societies Association (BSA), Brian Morris says that ISA providers will be given a little breathing space before making sure that they have applied the changes to their accounts. He said: “We will be checking with our members that six months is sufficient.

“The increase in the limit is very welcome and something that we lobbied for. However, we would have preferred for this to all come into force in one go,” he added.

What Do You Think?

A good move or a bad one? Will this change help people or will it have little effect? We would love to know your thoughts and opinions. Leave your comments here.