ISAs: Tips from the top

Time is now running out for the 2011-2012 tax year, so if you want to make the most of your money then an ISA is the place to start. It's an extremely tough time for many savers, so in this video we asked a selection of industry experts for their top ISA advice.

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TIP 1 - What's an ISA?

Richard Fearon, Halifax: Your ISA should be the first port of call for your savings.

Andy Smith, Santander: ISAs are tax-friendly, so if you’re a basic rate taxpayer or even a higher rate taxpayer, the important thing is you don’t pay tax on the money you could earn on the money you have in an ISA.

RF: Unlike other savings accounts, the interest is sheltered from the tax man, so in the current economic environment, where every penny counts, it should be at the top of every savers priority list.

TIP 2 - Use your ISA allowance!

Paul Stokes, M&S Money: Whatever you do, make sure you use your ISA allowance each year.

RF: You need to use your ISA allowance, or lose it.

AS: You only have one allowance each year, so use it or lose it.

RF: We know it’s not always easy to save, but you should use your entitlement if you can.

AS: If you’ve got the £5,340 pounds, then you should put that into an ISA each year.

TIP 3 - Leave your ISA alone

PS: ISAs are really simple and straightforward, it’s just a savings account that pays your interest tax-free. There is one restriction though: if you take money out of your ISA it’s not easy to put it back in that same tax year. So just make sure if you’re taking money out, you’ve thought about, you’ve thought about other places you could take that money from first before you withdraw it from your cash ISA.

TIP 4 - When should I use my ISA?

RF: It’s a good idea to use your cash ISA allowance early in the year. If you had used your full allowance at the start of this tax year, you would have earnt £160 in tax-free interest at a rate of 3%, compared to less than £14 if you left it until a month before the tax year end.

TIP 5 - Fixed or easy access?

AS: It’s important you think about how you’re going to want to use the money.

RF: If you’re happy to leave your money untouched for a year or more, consider a fixed rate ISA.

AS: Two-year fixed rate ISAs tend to have better rates, but you can’t get at your money for the two years.

TIP 5 - Stocks and shares?

RF: Don’t forget about your investment ISA allowance. If you can afford it and use both your cash and investment ISA allowances, you can shelter £10,680 from the tax man this tax year, rising to £11,280 in the next tax year. That’s a fantastic opportunity to take advantage of tax-free savings.

TIP 6 - Chasing the rate

PS: Watch out for some short term greed. It can be really, really tempting to opt for the cash ISA that pays the highest rate of interest, but unless you’re the kind of person who every year is going to check it’s still earning that really strong rate of interest, sometimes it’s best to go for one that perhaps doesn’t have a big, juicy short-term bonus. There are loads of cash ISAs out there, many of them do have bonus rates on them that might last for 12 months. So unless you are going to be really active and keep a close eye on it, then perhaps look at some of the alternatives where there isn’t a bonus attached but you can know you’re going to get a good rate for a long period of time. 

TIP 7 - Transfer window

RF: Don’t forget about your old cash ISAs.

PS: Don’t be afraid to transfer your cash ISAs.

AS: It’s important to look at ISAs and understand whether they allow new money or all of the money that you’ve saved to date.

PS: Many people have cash ISAs they bought in previous years, that perhaps aren’t earning the highest rate of interest today.

RF: It’s always worth keeping an eye on them and comparing rates and worth shopping around.

AS: You could have over £40,000 in cash ISAs allowances to date, if you add everything from when they were invented.

RF: If you do decide to switch provider, check that your new provider will pay interest from the day the funds are received, so that you don’t lose out.

AS: Some ISAs will allow the £40,000+ to go into them, and some will just be this year’s allowance.

PS: It’s really simple to transfer your ISA from one provider to another. Normally there’s a simple form to complete – it takes a few minutes and the provider will do all the leg work for you.

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