By Paul Lewis

Is there still life in the cash ISA? That is what many are asking now that, thanks to the new personal savings allowance, the first pound;1,000 of interest on savings is free of tax. Why save in an ISA when a simple savings account will earn interest paid gross and for 95% of us it will be tax-free?

There is another problem with ISAs.

Interest rates are generally slightly lower than those for normal easy access cash accounts. The best unrestricted online cash ISA is Coventry Building Societys Easy Access ISA paying 1.3%. But you can get 1.45% from RCI on its online Freedom Savings Account if this housed your only savings, you could have nearly pound;69,000 in it before any tax would be due.

You can earn a bit more on an ISA if you are prepared to give notice before a withdrawal, or open and manage it by post. But for most people the ease of the online savings account will beat the hassle of the ISA, even if it pays a fraction of a percentage point more.

On fixed-rate savings over one to five years the best regular savings accounts beat the best cash ISAs over every period. For example Punjab National Bank pays 1.9% on a two-year cash ISA, but 2.2% on a two year cash savings account.

Cash ISAs are still a good idea for people whose income from savings exceeds their tax-free personal savings allowance. The pound;1,000 for basic rate taxpayers falls to pound;500 for those who pay higher rate tax (income over pound;43,000). There is no personal savings allowance for people who have a taxable income over pound;150,000, when top rate 45% tax begins.

There is one more reason why cash ISAs should still be considered. This year you can put in pound;15,240. Once in an ISA the interest earned on that money stays tax-free as long as the account is open. So if rates or your income rise significantly in future, that tax-free harbour may become more valuable.

All accounts mentioned here are covered either by the Financial Services Compensation Scheme, which protects your money up to pound;75,000, or the European equivalent, which protects it up to euro;100,000 about pound;76,000.

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A bipartisan group of former legislators, academics, former state and federal government employees and business owners joined forces over the past two years to come up with solutions to America's retirement security problem.

The Bipartisan Policy Center launched the Commission on Retirement Security and Personal Savings in 2014.

"They really tried to look at it from a comprehensive standpoint," says Shai Akabas, associate director of economic policy for the Bipartisan Policy Center.

The commission looked at 401(k)s, personal savings, pensions and Social Security.

"They really thought that looking at the complete picture of retirement savings and income is what is necessary to come up with solutions that work well together and can substantially improve people's retirement outcomes," says Akabas.



Ranjit Punja
CreditMantri

The conventional social wisdom in India about taking loans can be summed up in one phrase do not take on debt. This black and white approach to credit might not be advisable when it comes to your business. Using your savings to build a business is a part of the entrepreneurial journey, but liquidating your entire savings just to avoid taking on any kind of debt might not be worth the risk.

Often, individuals running a sole proprietorship, fund their business entirely on their own simply because securing a bank loan might seem a gargantuan task, or because they are hard-wired socially to avoid taking on debt - without quite understanding why they are not choosing the loan route. The upside of liquidating your personal savings is that you are saved the expense of paying interest costs, and you do not have to worry about repaying the loan amount. You also do not have to worry about potential creditors asking for repayment. That is perhaps, in a nutshell, the only advantage of using up your savings to finance your business.

Lets look at the other side of the picture. What are the advantages of opting for a business loan?

There are several strong reasons why you should choose to take a loan over using up your savings. For a start, liquidating your savings and not keeping any money aside for a rainy day either for personal or business emergencies is never a wise choice. If you need funds urgently and have used up your savings, you might be forced to take a personal loan which can be an expensive option, with interest rates sometimes going up to as high as 25%-30% per annum. In contrast, you can borrow funds for your business at a relatively lower rate of interest while at the same time enjoying the mental and monetary security of having funds to take care of unforeseen circumstances in the future.

Second, business loans need not be an expensive proposition. In fact, they may be cheaper than personal loans and you can get avail of a variety of business loans at attractive interest rates.

Third, retaining your savings and opting for a business loan can be a more financially attractive option as you can earn returns on your savings. You can invest your freed-up savings to earn interest or dividend income, while at the same time running your business with relatively inexpensive finances secured from a business loan. The money you earn from investing your savings may well be greater than the interest you pay on your business loan. Moreover, if you use up all your savings on your business, you might find it difficult to have the necessary credit profile to be approved for a business loan later, if the need arises.

Additionally, you can get a tax benefit on your loan repayment. The interest paid on a business loan is tax-deductible, so even as your savings are earning you income in an FD or in the stock market, you are saving tax on your interest payments on your business loan.

And finally, a business loan also gives you the flexibility to borrow as much as you need to operate your business efficiently and optimally. Restricting yourself to only your personal funds means you are limited by the amount you have saved, whereas your business might actually require a greater capital inflow that can only come from a bank loan.

Naturally, if you are planning to start a new business, it might require you to invest some of your own savings since banks might be unwilling to lend you the amount you require. However, it is still necessary to ensure that you do not liquidate your entire savings, and instead rely partially on a business loan, even in the early years. Entrepreneurship can be a risky venture and it is always advisable to set aside at least a portion of your savings to fund any untoward emergencies in the future. So, if the question is to borrow or not to borrow to fund your enterprise, a business loan is the simple and practical answer to the dilemma.

So if income is not rising as fast as consumption, then how are consumers funding this spending increase? Part of that can be attributed to the fact that savings have decreased. Personal savings went to$751.1 billion in April from$809.4 billion in March, and the personal savings rate decreased to 5.4% from 5.9%.