Saving for your retirement with an ISA is probably the last thing on your mind if you’re in your 20s. However George Osborne’s recent budget means that this year’s graduates won’t be able to draw their state pension until they’re at least 71 years old.
If you’re under 30, it’s hard to think about saving that far ahead. Especially when there are plenty of things you could be spending your hard-earned cash on now. But if you want to help towards your retirement – and make sure you have the finances to live comfortably – isn’t it time you started to put some money aside for your future?
When it comes to setting up a savings account, the choice might seem a little bit overwhelming. After all, there’s such a wide range of accounts available – each with their own advantages. But when it comes to putting money away for your retirement, a cash ISA could be your best bet.
A cash ISA is a savings account that gives you tax-free interest on your money. So, assuming you’re a basic rate taxpayer, instead of paying 20p on every £1 you earn in interest, you get to keep it all.
Every tax year, you get a tax-free cash ISA allowance – which currently stands at £5,640 for the 2012/13 tax year. You can pay in up to the maximum, but no more during each tax year. While the interest may vary on different cash ISAs, the longer you leave your money in an ISA untouched, the better the rate of interest will generally be. The tax treatment depends on your individual circumstances and may change.
For longer term savings, our best cash ISA is the Halifax ISA Saver Fixed. It gives you a fixed rate of interest for the agreed term of the account – anywhere from one year up to five years. With this type of ISA, withdrawals aren't allowed, except on early closure where a charge will be applied and you may therefore get back less than you first deposited.
The great thing about some cash ISAs is that you can set up a standing order to transfer money quickly and easily from your current account. And while you make the most of life now – whether that’s travelling the world, buying a house or starting a family – you could also be slowly but surely building a nice little nest egg, to help you live comfortably when you do eventually retire.
