Save £40,800 tax-free this month!

New rules mean you and your partner can save an absolutely massive sum tax-free this month - but you need to hurry....

With just 11 days left until the end of the tax year (5 April), if you haven’t yet used up your ISA allowance, it’s time to get your skates on.

If you’re under fifty, you currently have a yearly tax-free ISA allowance of £7,200. Up to £3,600 of this can be saved in a cash ISA, and a further £3,600 can be put in a stocks and shares ISA.

However, from the start of the new tax year (6 April), these figures will rise. So you’ll be able to invest up to £5,100 in a cash ISA, and up £5,100 in a stocks and shares ISA, boosting your total allowance to £10,200. Alternatively, your entire allowance can go towards your stocks and shares ISA.

• Watch our video: How to invest your first stocks and shares ISA

This is great news – after all, if you can afford to put that much to one side, you’ll have a pretty tidy nest egg, and of course, it’s all tax-free.

However, if you were born on or before 5 April 1960, the news is even better. And that’s because you can already make the most of a £10,200 allowance - before the end of this tax-year.

So if you have a lot of money languishing in a taxable savings account and you haven’t yet used up your ISA allowance, make sure you do so before 5 April!

Why it’s worth it

Let’s use the example of Tom and Vera. Tom is 56, and his wife Vera is 54. They’ve got savings of £25,000 each sitting in various different savings accounts, all of which are earning a pitiful rate of interest.

However, if Tom were to use some of that money and transfer his full ISA allowance of £10,200 into an ISA – split between a cash ISA and a stocks and shares ISA - before 5 April, he could be earning a far better rate of interest on his savings, simply because it’s tax-free.

Admittedly, cash ISA interest rates are not particularly enticing right now – and as a result, you may be wondering whether investing in an ISA is even worth it. But bear in mind that even if interest rates don’t look particularly appealing, they are in fact higher due to their tax-free status. For example, if you were earning 3.51% AER on your cash ISA, this would be the equivalent of 4.39% for a basic taxpayer, or 5.85% for a higher rate taxpayer.

Considering most savings accounts are paying around 2.5%, it doesn’t sound quite so bad now, does it?

Similarly, if Vera were to do exactly the same thing with her £10,200 allowance, that’s a total of £20,400 tax-free between them.

It gets better

So Tom and Vera now have £20,400 sitting in their ISAs, happy in the knowledge that the taxman can't get his grubby hands on their cash.

But because the new tax year is just around the corner (6 April), their nest egg can soon be boosted even further, with Tom and Vera both being able to invest a whole new year’s allowance! So this means they can put a further £10,200 into their ISAs – each. As a result, they will now have a total of £40,800 in tax-free accounts! Not bad for just a few days’ work.

Don’t waste it

Even if you’re under 50, there’s still no excuse not to use your ISA allowance if you can afford to. You and your other half can still save £34,600 in the next month - and remember, if you miss the deadline for this tax year, you'll never get the chance to take advantage of your allowance again.

Interest rates on cash ISAs may not be as high as you’d like them to be, but it’s still well worth making the most of your allowance if you want to maximise  your holding of tax-free savings for the future – interest rates will rise eventually!

Unfortunately, not all cash ISAs will allow you to transfer funds in, so this is worth bearing in mind when you're applying for an ISA. Right now, the best paying easy access cash ISA which allows transfers in is the Santander Direct ISA - offering an interest rate of 2.75%. This includes a 12 month variable bonus of 2.25%. To qualify for this rate you will need a minimum deposit of £9,000.

Alternatively, the Santander Flexible ISA pays a higher rate of interest at 3.50% and guarantees it will pay 3% above the Bank of England base rate for 12 months. You’ll only need a deposit of £1 for this ISA, but it doesn’t allow transfers in.

If you’re prepared to lock up your funds for a year or more, you could consider a fixed rate ISA instead. The longer you're prepared to tie up your funds, the higher the rate of interest. The Nationwide 3 Year Fixed Rate ISA, for example, offers an interest rate of 4.40% - however, you will need to keep your funds tied up for three years. This cash ISA allows transfers in.

You can read more about all of these ISAs in The top 16 cash ISAs.

Stocks and shares

If you’re thinking of investing in a stocks and shares ISA, you need to decide whether stock market investing is right for you. Investing in the stock market can be risky and not everyone is comfortable with it.

Related goal

Make money from the stock market

Taking the plunge into the stock market isn't for the faint-hearted, but investing can help you achieve your financial goals.

Do this goal

However, if you’re feeling a little adventurous, make sure you check out Make a fortune with your ISA to find out how to go about investing in stocks and shares. You can find out even more about investment ISAs here.

Finally, if you’re still a little unsure exactly how ISAs work, make sure you read Top ISA dos and don’ts which will tell you everything you need to know. And don’t forget, you can also post a question on our Q&A section to ask the lovemoney.com community for help.

But whatever you do, make sure you don’t let your ISA allowance go to waste! The clock is ticking...

• Adopt our goal: Make money from the stock market

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