On October 6, the rules for Individual Savings Accounts change for those over the age of 50, with the annual allowance for tax-free savings rising from £7,200 to £10,200. Under 50s will have to wait until April to see their ISA limit increase.

However, according to research by the Post Office, two-thirds of those eligible for the increased allowance are still unaware of the new rules.

Richard Norman, head of Post Office savings, said: “With more people feeling the financial squeeze it is important to make your money work as hard as possible. But most people don’t know about the changes.”

Up to half of the new £10,200 allowance can be saved in a cash ISA, while the rest can be invested in stocks and shares. Savers over 50 years of age who use their full , but dividends paid out from the shares are not tax-free.

Of 18 million ISA account holders in the UK just five million each year use their full allowance, figures show.

The higher limit will be good news for savers, since until now the limit for tax-free ISAs has hardly changed in the 10 years since they were introduced.

However, many over 50s will have already locked away their savings in a fixed-rate account at the start of the financial year on 6th April, before Alistair Darling announced the changes on Budget Day. Since April the rates on most fixed-rate accounts have improved considerably, with some five year deals increasing from 3 per cent to 4.5 per cent or higher, but they are not tax-free.

It is possible to move money stored in a fixed-rate savings account to an ISA, but many banks will levy a charge if the money is withdrawn before the notice period, so it is worth checking the small print before making a transfer.

This entry was posted on Friday, September 18th, 2009 at 11:43 am and is filed under Banking, Savings, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.