The clock's ticking. There’s now less than a month till the ISA year ends and cash is nicer in an ISA as it’s tax free, so seize the moment.
Opening an ISA can take time, so the sooner you do it, the better. Money Saving Expert Martin Lewis is here with his top tips.
1. A cash ISA is just a tax-free savings account
Don't let the name fool you. Every person in the UK over 16 can save up to £5,640 in a cash ISA until 5th April (£5,760 from 6th April) without the taxman chomping your interest. Otherwise it's just like a normal savings account. With easy-access ISAs you can take money out whenever you want.
2. At 2.5% tax-free, it can beat 3% savings
In normal savings your interest is taxed, so until 6 April a basic taxpayer loses 20% of it, a higher rate tax payer loses 40% and a top rate payer loses 50% (45% from 6 April). But in an ISA, you keep it all. So to earn the same interest as a 2.5% ISA, a basic rate taxpayer needs normal savings paying 3.125%, higher rate 4.17% and top rate 5% - and they're not out there.
3. You don’t need to lock cash away in an ISA
Just get it in there. Once the money's in an ISA, you never pay tax on it, until it's withdrawn, so it's protected from tax long-term. Yet if you’ve an easy-access cash ISA and want to take the money out, you can whenever you want.
4. If you don't use it by 5th April, you lose it
Once midnight bongs on 6th April, that tax year's allowance vanishes like Cinderella, so if you have cash, do it now. Admittedly, the next day you get a new, bigger £5,760 allowance, so you may ask "what's the rush?". Well, even if that's more than enough, play safe, put it in THIS ISA YEAR in case you get an unexpected windfall next year.
5. ISA top picks
Both the Cheshire Building Society (min £1,000) and Santander’s Direct ISA Saver (min £2,500) pay 2.5% AER.
The Coventry Building Society pays a higher 2.8% AER but you need give 60 days notice to withdraw.
All these are variable rate so you need to monitor them and ditch and transfer if they drop. If you’re willing to lock cash away you can get 2.8% fixed for two years with Santander (3% if you’re an existing 123 customer)