With only four months of the 2007/8 tax year left, it's time to start thinking about using up that cash ISA allowance.
One thing I've been asked a lot lately is my opinion on the best place to put cash savings - which has surprised me a little as I'd mistakenly believed that most people were currently in the process of spending money, rather than saving it! But then, if you followed the tips in "How to afford everything" the festive season won't affect you terribly, as you'll have planned for it already.
Anyway, if you're interested in the most profitable places to stash your cash, let's take a look at cash ISAs.
Cash ISAs
Firstly, you should realise that everyone over 16 is entitled to a take out a cash ISA - you can use it to save up to £3k in 2007/8 (£3,600 in 2008/9).
But why should you bother - why not stick it in a traditional savings account? Because any interest earned in an ISA is received free of tax, meaning you keep more of your money. What's more, if you need to fill out a tax return each year, you don't even need to declare your ISA savings on it.
Clearly cash ISAs are a great way to start to save, and with just four months of this tax year left, you'd be wise to think about using up this allowance now, if you haven't already. (However, note that if you think you'll want to invest more than £4k in an equity ISA you may want to consider alternative homes for your cash.)
This especially applies if you're a taxpayer and your savings are currently sitting in a traditional savings account. Even non-taxpayers should consider using their ISA allowances each year, as it can protect your cash against being taxed in the future, should your circumstances change.
For example, a basic rate taxpayer with £9,000 in a savings account paying 6.3% AER would receive just 5.04% after tax, or £450 over the year. A higher rate tax payer would be earning just 3.78% AER, or just £340. However, move that money to the Halifax Fixed rate ISA saver, paying 6.5% AER and both savers would be pocketing £585 after a year.
Top cash ISAs available at the moment include:
Provider | Account Name | Interest Rate (AER) | Min. deposit | Notice/Bonus | Transfers in allowed? |
|---|---|---|---|---|---|
Halifax/Bank of Scotland | Fixed rate ISA saver | 6.50% | £3k-£36k | 1-4 year term. Interest paid upon maturity. Earlier access on closure only on 30 day notice + 180 day loss of interest. | Yes |
Julian Hodge Bank | 1 year fixed mini cash ISA | 6.50% | £3k-£27k | 1 year term. Earlier access subject to penalty. | Yes |
Yorkshire BS | Fixed Rate anniversary ISA | 6.35% | £100-£3k | Free withdrawals permitted and payments during your anniversary month only. Earlier access on closure only on 90 day loss of interest. | No |
Derbyshire BS | Fixed Rate ISA Issue 24 | 6.30% | £1k-£36k | Earlier access on 120 day loss of interest. | Yes |
National Savings & Investments (NS&I) | Direct ISA | 6.30% | £1k-£3k | No Notice. Rate guaranteed to be 0.55% above Base Rate to 5.4.08. | No |
Source: Moneyfacts
As you can see, the only instant access account in the table is from NS&I, paying 6.3%AER and which requires a minimum deposit of £1k. What's more, it also offers a fantastic guarantee that its rate will remain 0.55% above base rate until next April.
For those with less cash to save Yorkshire BS requires £100+ and pays 6.35%AER. This account is also unique in that you'll need to pay attention to the month the account was opened, as this is the only time you'll be able to pay money in, and when making withdrawals is free (you'll lose 90 days interest at any other time).
Existing ISAs
Now it's important to note that a lot of readers already have cash ISAs, and while their money will be happily growing, free of tax, rates can slide so it's important to keep an eye on them. Check the rate on your ISA and if it's far below the best buys, consider transferring your cash to a top paying account. The Halifax, Julian Hodge and Derbyshire BS cash ISAs listed above all allow transfers in of old ISAs. And remember, it's vital to tell your existing ISA provider that you wish to transfer your ISA to the new account to maintain its tax free status - don't close the account down or it will be lost forever.
So there you have it, a quick guide to the best ISAs available at the moment. But what if you've already used up your ISA allowance this year? Watch this space, because we'll publish an article on high interest savings accounts later this week...
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