While those under 50 won't benefit from the new higher limit until next April, they can capitalise on renewed activity in the market.
How much can I invest?
The new annual cash ISA allowance is £5,100 for the over-50s or anyone who is 50 on or before April 5, 2010. Savers under the age of 50 can invest up to £3,600 this tax-year, although everyone will benefit from the higher allowance from April next year.
For more on what Individual Savings Accounts (ISAs) are and how they work read our article, 'New ISA rules explained'.
Take advantage
Although only those aged 50 or over will be able to invest the additional £1,500 this year, now could be a great time to open a cash ISA if you haven't yet used your allowance.
The interest on ISAs is tax-free so it's a perk well worth taking advantage of - basic rate taxpayers effectively receive a 20% boost to their annual return, while those in the higher-rate band see a 40% uplift.
Kevin Mountford, moneysupermarket.com's head of banking, said: "If you haven't used your ISA allowance yet this year, why wait until the rush in February and March? There are some competitive deals available at the moment because of the rule changes, so take advantage as you'll benefit from an extra few months of tax-free interest."
As with standard savings accounts, fixed rate deals are offering the highest returns. If you are prepared to lock your money away for five years, Leeds Building Society's five-year Fixed Rate ISA (Issue 15) is paying 4.60%.
Many savers will be reluctant to tie their money up for that long. If you'd prefer a shorter-term deal, Principality Building Society's three-year Direct Fixed Rate ISA (Issue 54) is paying 4.20%, while Bradford & Bingley's two-year fixed rate eISA has a rate of 3.75%.
Fixed rate accounts are only suitable if you have a lump sum to invest (as most only allow one deposit to be made) and don't need to access your savings for a year or two.
Making withdrawals from an ISA should always be a last resort because you lose the tax-break on that money once it is taken out of the ISA-wrapper. However, if you'd prefer to retain access to your ISA money just in case, or are looking to invest your ISA allowance over the remainder of the tax year, there are easy access accounts available.
First Direct's cash e-ISA has a rate of 3.00% which is actually fixed (until 9 November 2010) but allows unlimited penalty-free withdrawals and additional deposits. It is unusual for easy access accounts to have a fixed rate, as most are variable accounts.
Other alternatives include Standard Life's Direct ISA which is paying 2.65%, Barclays' Golden ISA at 2.58%, ING Direct's Cash Isa and Intelligent Finance's Cash ISA, which both have a rate of 2.50%.
Boost returns on your existing ISAs too
If you've taken out cash ISAs in previous tax years, check what rate of interest you're currently earning. If it's not competitive, you can move your money to a new ISA paying a higher rate without losing the tax-free status.
The process is called an ISA transfer and the key thing is not to close your existing ISA account but tell your new provider that you have funds to transfer and it will arrange for your money to be moved over.
Not all ISAs accept transfers in however, so bear this in mind when comparing deals. All the fixed products mentioned above allow transfers. Of the easy access accounts, First Direct, Intelligent Finance and Standard Life let you transfer money from previous tax years.
Another deal worth mentioning is Lloyds TSB's Fixed Rate Cash ISA. Like the First Direct account, the rate is fixed but withdrawals are permitted. It pays 1.50% on balances up to £9,000 so isn't that competitive if you are only looking to invest this year's allowance. However, the rate is tiered and rises for higher balances. If you've made use of your cash ISA allowance every year since they were introduced in 1999, you could earn 3.20%, which is market-leading for an easy access account. And for balances between £21,000 and £29,999, the rate is a competitive 3.00%. Abbey's Direct ISA also offers a tiered rate. It pays 2.00% on balances up to £9,000 and 3.00% on balances above that.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Products underlined can be applied for directly.
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