A raft of tax changes take effect, including changes to the Isa rules. Savers can now invest up to £7,200 a year tax-free and £3,600 of that can be held in cash - up from £3,000 in previous years.
Most people leave it until the last minute to use their annual Isa allowance - more than 80% of Isa accounts are opened in the final six weeks of the tax year. However, with increased allowances available and a full year ahead to build up interest, there has never been a better time to save.
Why is the start of the new tax year the best time to save?
The majority of cash Isa providers calculate their interest annually - this will usually occur at the end of March to coincide with the end of the tax year on April 5. Therefore, it makes sense to invest your cash at the start of the new tax year to earn a full 12-months' interest.
Statistics from Abbey savings suggest that savers could collectively throw away around £4.3billion in interest by waiting until April 2009 to invest. You could earn as much as £360 in interest if you invested now into Abbey's Super Isa (Issue 2), which offers an interest rate of 10% when you invest £3,600 and put the same amount or more into the company's guaranteed growth fund.
It's not the only account currently offering 10% interest - the Alliance & Leicester (A&L) Premier Isa Issue 2 offers the same rate to customers who open a new Premier 50, Premier 21 or Premier Current Account with the provider.
Savers can benefit from some really competitive rates at the moment. Research from Moneysupermarket found that rates are on average 1% higher now than they were at this point last year - when the Bank rate was also 5.25% - and a number of new Isa deals, from providers including Birmingham Midshires and Coventry and Skipton building societies, have been launched to attract the early bird investors.
What are the market-leading cash Isa deals?
While the Abbey and A&L deals offer a rate of 10%, many savers will prefer a more straightforward account.
Barclays has the best deal. Its Tax Haven Isa is paying 6.50%, although this includes a one percentage point bonus which lasts for 12 months. Existing Barclays' customers can apply online, but new customers must go into a branch.
Birmingham Midshires Direct Isa Issue 2 follows closely behind with a rate of 6.35%. This is a postal account and the minimum deposit is £1,000.
Unfortunately however, you cannot transfer money into either of these accounts, so while these are attractive deals for new customers existing Isa holders who have money invested from previous tax years may prefer an account that allows transfers.
The leading deals that allow Isa transfers are Scarborough building society's Notice Mini Cash Isa which is paying 6.30%, Abbey's Direct Isa Issue 2 and A&L's Direct Isa Issue 4, both of which are paying 6.25%.
The new offerings from Coventry and Skipton are both fixed rate products. Fixing your savings could be a good idea as interest rates are expected to fall again this year.
Skipton's fixed rate cash Isa is paying 6.26% until April 5 2009, while Coventry's is paying 6.00% until May 31 2009. Neither of these products accept Isa transfers, however.
Nationwide building society has a one-year fixed rate Isa at 6.15%, which does allow transfers.
If you are prepared to lock your money away for longer, Halifax is offering a rate of 6.20% that is fixed for four years. Transfers are accepted and this rate looks very attractive given the interest rate environment we are currently in. However, the danger of fixing your savings for such a long period of time is that you could be stuck on an uncompetitive rate if interest rates start rising. Also, withdrawals and an early closure of the account are not permitted so you should only commit money that you definitely won't need in the next four years.
What are the new Isa rules?
The terms 'maxi' and 'mini' have been abolished. Instead you can hold a mixture of cash, managed funds and shares within a single Isa wrapper.
The annual allowance has gone up from £7,000 to £7,200. Under the old rules, the maximum you could hold in cash was £3,000, but the cash element has been increased to £3,600 a year.
For further information about Isas, read Isa rules at-a-glance.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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