A new tax year means that we have another £20,000 allowance to use. And with interest rates rising so much over the last year or so, it makes more sense than ever to choose wisely. We’ve therefore put together some top tips on making the most of your tax-free allowance.
1. Make the most of the whole year. The beginning of the tax year is a good time to choose a cash ISA – not only are the rates likely to be more competitive at this time of year, but you can then earn tax free interest for the whole tax year.
2. Review your old cash ISAs. Like all savings accounts, rate hikes are not uniform across all providers and accounts. So, it’s important to review your old ISAs and if they are not competitive, transfer to a better ISA
3. Transfer your ISA – don’t close it and try to move the cash yourself. This really is the golden rule as with most cash ISAs, if you close the account and move the money into your bank account, you will lose that ISA allowance and you won’t be able to put the cash back into another ISA without if effecting the current tax year’s allowance.
4. Might you need short term access to your ISA cash? Some, but by no means all, cash ISAs, are what are known as ‘flexible ISAs’ which means that if you need short term use of your cash, you could actually withdraw some or all of the money and replace it within the same tax year without the replacement using your current ISA allowance.
5. Gift to your children. Children from the age of 16 can open their own cash ISA as well as a Junior ISA (which can be opened at any age before 18) – so if you are looking to gift some cash, you may want to use a cash ISA too. Parents friends and family can add up to £9,000 a year into a Junior ISA (JISA) and a further £20,000 into a cash ISA. However, parents gifting money should be aware that although the interest in the cash ISA is tax-free to the child, if the amount of interest earned is more than £100, the parent may have to pay tax at their marginal rate of income tax. Any money gifted into a JISA is not subject to the same rule – all returns are tax free, regardless of the amount.
6. You can open one of each type of ISA each year, as long as the total deposit is not more than the current allowance of £20,000. There are four main types of ISA; cash ISA, stocks and shares ISA, Lifetime ISA and Innovative Finance ISA. For more information, why not take a look at our ISA Guide.
7. Be prepared to use a bank you’ve not heard of before. Although we’ve seen a number of familiar names making their way into the cash ISA tables recently, it’s OK to use a bank or building society that you are not familiar with. If they are regulated and therefore part of the Financial Services Compensation Scheme, your money will be just as safe as it would be with your high street bank – however you are likely to earn more tax-free interest with someone else. Any accounts that appear on our Best Buy tables are fully authorised and therefore part of the FSCS.
8. If you see a rate that looks too good to be true, it probably is. Although savings rates have increased considerably, if you see an advert online for an account that doesn’t appear on our Best Buy tables, be suspicious. At Savings Champion we monitor the whole cash savings market and we are completely independent, so if we don’t list it, it may not be what you think.
These are some of the main things to consider when opening or reviewing your ISAs – so what are you waiting for. Take a look at the best rates now and get your cash sheltered from the tax man.
@savingschampion
Find us on Facebook