Get your ISA before it's too late!

ISA season has come early this year, so should you grab a deal now before it's too late?

March is traditionally the peak of the ISA season, when providers parade their new deals on TV adverts, billboards and the internet in the hope that we will deposit our hard-earned cash with them.

This dazzling array of new deals is usually combined with hefty media coverage reminding you that it’s your last chance to make the most of this year’s ISA allowance.

But why wait until the last minute when you can get a great ISA now and save yourself the stress?

Early birds

In fact, the 2011 ISA season is already in full swing and since the New Year lenders have been tripping over themselves to launch new deals. The cash ISA market in particular has seen a significant rise in the best rates on offer in the last few weeks, and they are currently higher than what was offer a year ago (despite Base Rate being the same).

Indeed, the average cash ISA rate today (including fixed rate ISAs) is 2.27%, compared to an average of 2.05% in January 2010, according to Moneyfacts.

That’s all good news for savers although, let’s face it, rates are still relatively and historically pretty dire, especially when you take into accounting spiralling inflation.

If anything, this makes it all the more important that you squirrel away your hard-earned pennies in a tax shelter, to at least maximise the interest you will earn.

But won’t higher rates be released in the coming weeks as ISA season reaches its peak?

Worth waiting?

It’s possible that better rates may come out as some of the big players have yet to announce their newest ISA deals. However, you have to offset that against missing out on the current deals or, even worse, leaving it too late.

With savers desperate for a decent tax-free interest rate it is possible that the current crop of best buy ISAs may not hang around for too long. Once the provider gets in a certain level of savings, it may pull the deal and replace it with a less attractive one.

It’s also important to remember that ISAs can take a week or two to arrange, or longer if the provider is inundated with applications and experiences service issues. The one thing you need to make sure is that you fully open your ISA and deposit this year’s allowance before 5 April - the last day of this tax year. If you don’t, you will lose this year’s allowance. And you can never get it back.

Even if you do just make it, you could go through a week of stress in the week leading up to the deadline, as I did last year. I thought it would take a couple of days to sort out my ISA, not realising that my provider would need me to register and set up online banking with them in order to transfer money in.

This required an ID number and password being sent separately to my home and a lengthy delay. I made the deadline and managed to get my annual allowance deposited, but only just.

What are the allowances?

Each person over 16 has an annual ISA allowance of up to £10,200 in this tax year (rising to £10,680 in 2011/12). You can choose to put it all into a stocks and shares ISA, as we explained in detail in Quadruple the return on your savings.

Or you can choose to save up to £5,100 in a cash ISA (rising to £5,340 in 2011/12) and, if you decide to, put in the rest into stocks and shares.

Many people go for the cash ISA option because they are a safe, low-risk way for you to keep your cash out of the taxman’s grasp. They are simple to understand as they basically work like standard savings accounts but you don’t pay tax on your interest.

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Type of account

The most popular type of cash ISA is an instant access cash ISA, which works in the same way as an instant access savings account where you can withdraw money whenever you want to. This is great if you want to benefit from tax-free savings but do not want to tie up your cash.

Fixed term cash ISAs offer a guaranteed rate of interest for one to five years and they currently offer higher rates than the instant access accounts. However, some savers are concerned about tying up their cash for so long because they may need it for other purposes or better rates may come along in the meantime. Nevertheless they are popular with those who can afford to keep that money set aside for a period of time.

Below are the best buy instant access cash ISAs and the best fixed term deals. Remember to keep checking on lovemoney.com as new cash ISAs may well be released in the coming weeks.

And finally, don’t forget the deadline for depositing this year’s tax-free allowance -- 5 April! You can find out more about ISAs in our free ISA guides.

Top five instant access ISAs

Correct as of 08/2/11

Top five fixed term ISAs

Correct as of 08/2/11

More: Check out our free ISA guides | Get a great cash ISA | Get the best cash ISA of the year!| The top five easy access savings accounts