It’s official. ISA season is up and running. The countdown to the end of the tax year has many banks marketing their best rates for Cash ISAs. I’ve received emails from my investing portfolio platform to inform me that I haven’t used up my allowance. Despite the fact that ISAs have been around since 1999 there is still some mystery around them. Just the other day my housemate asked, “How do I transfer my ISA?” With a vast array on offer what do you need to think about when it comes to a Cash ISA?
Why? Cash Individual Savings Accounts (ISAs) allow you to earn interest on your savings tax-free. For those who are charged higher tax rates these types of accounts can offer them tax-relief.
How much? As this account is special every individual over the age of 16 is allowed to save up to £10,200 in an ISA. They can either save £5100 in a Cash ISA and £5100 in a Stocks & Shares ISA or the full £10,200 in the latter.
What if I already have one? If you opened your account in the current tax year you will have to wait until April 6th 2011 to open a new one and then you can transfer in the funds from your previous year. BE CAREFUL: Do not withdraw your funds from your Cash ISA as you will lose all the tax benefits. Make sure you understand how to transfer your ISA to ensure your maximise your interest earnings.
Aren’t the rates lower than normal savings accounts? Since the credit crunch interest rates on savings accounts have been at an all-time low. This is not forever though. The interest you earn on your current ISA may not be high but as rates increase it’s important to have a nice savings pot earning interest tax-free. This is why I continue to fill up my allowance each year because I know it will eventually pay off.
For any tax-payer the first place to save money is in a Cash ISA to take full advantage of the tax-free benefits. £5100 seems like it might be a lot but it’s well worth striving to save this amount. Over a year that’s £425 per month. Each tax year the annual allowance for ISAs will increase in line with inflation. Keep your eyes peeled for when this new limit is officially announced and take advantage of it!
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