All you need to know about ISAs

The clock is ticking on ISAs! Find out about why you should use your allowance before April 5…

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If you are a taxpayer you should try and open an ISA every year. This is because returns on ISAs are tax-free!

Each year, you have an annual ISA allowance. The current allowance is £11,520 – you have until April 5 2014 to invest as much as this as you can afford. On April 6 your new allowance rises to £11,880

There are two types of ISA to use: a stocks and shares ISA, and a cash ISA.

You can invest your entire ISA allowance in a stocks and shares ISA, but the maximum you can put directly into a cash ISA is 50% of your yearly allowance!

With a stocks and shares ISA you invest in shares or investment funds.

A cash ISA is like any other cash savings account apart from the fact you don’t pay tax on any interest you earn.

Investing in a stocks and shares ISA is higher risk than a cash ISA - you are investing in the stock market so if share prices fall you could lose money.

Try not to touch savings you have in ISAs because as soon as you make a withdrawal, that money is no longer tax-free…

…But, don’t be put off by this - ISAs offer a valuable tax break, so pick an easy access cash ISA if you might need to get at your money.

If you want a cash ISA and can afford to lock your savings away for a few years, consider a fixed rate account as the rates of interest tend to be higher.

Interest rates on easy access ISA accounts are variable – so keep an eye on it and move your money if it becomes uncompetitive.

You can move money from one cash ISA to another without losing the tax benefit…

…But not all accounts accept transfers in though so make sure you check this first.

Make sure you open an ISA before April 5 – if you don’t use your allowance, you lose it.

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