It pays to be an early bird when it comes to the £20,000 ISA allowance.

This year more savers than usual have rushed to open ISA accounts in the final months of the tax year, amid speculation that the Chancellor may limit how much of this overall allowance
can be saved into cash ISAs.

ISAs play a key role in both short- and long-term savings. Opening an ISA early in the tax year gives savers more time to choose the right product and gain an additional 12 months of tax-free growth.

Crossing generations

Every age group can benefit from ISAs. For shorter-term savings, accessible within five years, cash ISAs are the likely option, offering tax-free interest. In contrast basic-rate taxpayers can only earn interest of up to £1,000 a year tax free on standard savings accounts, which reduces to £500 for higher-rate taxpayers, and zero for those subject to the additional rate.

Cash ISAs may also help younger ‘Gen Z’ savers. A recent report found over half of those aged 16–27 had saved nothing in the past two years. Millennials also struggle due to high housing and childcare costs, while fewer than one third of Generation X (aged 45–60) are confident they’re on track to meet retirement goals.

Many may want to consider stocks and shares ISAs for these longer-term objectives. Though volatile, equities have historically delivered higher returns, helping savings keep pace with inflation.