The individual savers in the United Kingdom are expected to further feel the financial heat. After job losses and cut in interest rates there could be more bad news in the horizon. It has been revealed that the government could cut the annual ISA limit as part of its spending review later this month. This is expected to hit the UK savers who have already been burdened by the rising inflation which is above the target set by Bank of England.

Currently, all UK savers can put £10,200 in an ISA account, with £5,100 in shares ISA and the remaining funds in a cash ISA. This limit was only recently raised in April from £7,200 but Labour MP and Treasury Select Committee member Andy Love has warned that the Government could lower it to claw back funds. A final decision on the matter is scheduled for October when comprehensive spending comes for review.

The Treasury lost out on £2.2 billion in the 2008-2009 financial year from ISAs as the accounts are not eligible for tax. Now in order to boost the economy further and increase its public spending to earlier levels, the government is attempting to earn more taxes from the individual savers. This group has also been one of the worst hits in the recent years as the interest rates on savings has fallen to historically low levels.

Tom Stevenson, investment director at Fidelity, told the Daily Mail: “ISAs should be viewed as a year-round investment and shouldn’t just be considered at the end of the tax year. We encourage those who usually leave it late to think about the difference it can make to invest early. Put simply, it gives your money more time to grow.”

Most of the UK customers are not happy with this decision and feel that this might have adverse effects on the savers.

An ISA – or Individual Savings Account, is a government scheme designed to encourage us to save. Every year, we are each given a set limit, and all interest you earn within that limit is tax-free. (Given that the tax on your regular accounts is automatically deducted, many people aren’t actually aware that they pay on tax on the interest in their accounts.)

It seems from market research carried out by various companies that one of the reasons so many people are shunning ISAs is because of the low interest rates on offer. Certainly, the fact that the Bank of England base rate is the lowest it’s ever been makes it a lot harder to find ISA rates of 5 or 6% that were once common place.

However, even with rates as they are, ISAs can be an extremely effective way of saving money. If you plan on making regular, long-term savings in to your ISA account, the savings versus a regular account can indeed be significant.  Indeed, if you were to save £50 a month over 20 years, on an account with a 2% rate, you’d save £300 in tax! To put that another way, that’s like 6 months free saving, courtesy of the tax man.  If you are a higher-rate tax payer or that figure become even more significant.

For those who are still looking for a potentially higher rate of return, you can still do so in a tax efficient manner. A Stocks and Shares ISA allows you to invest £7,200 a year in the stock market. The tax savings will depend on your individual circumstances as will the amount of money you earn. As investments of this nature can go up as well as down, you won’t have the guarantee that would have with a cash ISA (or indeed, with a regular savings account) but the income generated (and the tax savings) have the potential to be an active part of any investment portfolio.

Where to invest your money is an important decision, but it’s also a personal one. Before the end of the tax year, make sure you get the financial advice that you need to make the most of your savings and investments.

As of 6 October, millions of savers aged 50 and over will be able to increase the amount of money they put away into tax-free Individual Savings Accounts (ISAs).

The changes were announced in the chancellors 2009 Budget in July this year.

Before today, the annual ISA allowance for all UK savers was £7,200, of which a maximum of £3,600 could be deposited into a cash ISA. The limit has now risen to £10,200 for many, with up to £5,100 that can be put into a cash ISA and the remaining into an investment ISA, or the full £10,200 into an investment ISA.

All savers aged under 50 must wait until the new tax year – 6 April 2010, before being able to take advantage of the new limits.

“I am determined to help savers, because while low interest rates have helped millions of homeowners, I also know that they have hit those who rely on their savings to get by,” said Chancellor Alistair Darling.

ISAs were introduced by then-chancellor Gordon Brown 10 years ago in an attempt to encourage UK residents to save more.

Today there are around 19 million UK savers with an ISA account, five million of which invest the full allowance each year.

Savers are only allowed to open one cash ISA and one stocks and shares ISA per year. ISAs have become a very popular savings method, so to keep up with demand there are a number of banks and building societies offering accounts, each providing different options and different rates. Many providers are offering savers aged 50 and over the chance to top up their existing ISAs.

Some providers are allow customers to top-up variable-rate ISAs, but not to fixed-rate ISAs, while others will allow fixed-rate top-ups as the change is considered an “exceptional circumstance”.

Other providers have agreed to let savers to open a parallel extra ISA, allowing them to bump their savings up by an extra £1,500 cash allowance, but the rates offered will reflect the level offered on the day – not the rates that were previously set when the account was originally opened.

Rob Fisher, head of personal investments at Fidelity International said: “ISAs have been around for several years now, and while they are widely understood, we believe some lingering perceptions remain that quite simply stop some investors taking advantage of the benefits that are theirs for the taking,

“The new rules coming into effect now, and the subsequent changes which are set to happen at the start of the new tax year, present investors with a bigger ISA opportunity than ever before.”