As the new tax year gets under way, it’s time to stow away your tax-free ISAs

WITH the start of the new tax year (party poppers at my house), you now have a brand new tax-free savings ISA allowance.

The slate’s wiped clean, everyone has a bigger amount they can save tax free, £5,760. So, here are the ten things you need to know to maximise the gain this 2013-14 tax year.

1 A cash ISA is just a tax-free savings account.

It sounds more complex than it is, but it’s simply a normal savings account, where you don’t pay tax on the interest. That’s it. Don’t overcomplicate it in your head.

Just like normal savings, there are a host of different options, including easy-access cash ISAs (where you can take your money out when you want) and fixed accounts to guarantee the rate. So, if you have money in savings and don’t use your ISA allowance, it’s time to – you’ll earn more.

2 ISAs smash normal savings even if their rates are higher.

With normal savings, a basic taxpayer loses 20 per cent interest in tax and higher 40 per cent.

So a three per cent cash ISA returns as much as a 3.75 per cent savings account for a basic rate taxpayer, and five per cent for higher rate.

3 Don’t think that you are tying up your cash.

Many confuse ISAs with their now longdeceased predecessors, Tessas. These meant locking cash away. ISAs can be used in the short term too, with easy-access deals letting you get money out whenever you want.

The rules state you can put in £5,760 by April 5 next year, and can withdraw it anytime. The only stipulation is, once done, it then can’t be returned. An example to help: put £5,000 in, and you’ve £760 more allowed. If you then withdraw £1,000, that’s irrelevant. You can still only put £760 more in.

4 The top easy access deal pays 2.5 per cent AER.

Coventry ( pays 2.6 per cent and it guarantees to be at least 2.6 per cent until April 5, next year. Or Cheshire Building Society ( is 2.3 per cent, but has a big 1.8 per cent bonus until next October, which effectively acts as a rate guarantee till then. Both are still variable rate accounts, meaning you can’t guarantee the rates will stay high long-term. Monitor them every couple of months and, if they drop, ditch and transfer.

At the start of the new ISA year new, accounts are launched regularly. To keep up to date on the best, see cashISAs.

5 Guarantee a rate of three per cent AER.

With fixed ISAs, you effectively lock cash away for a period in return for guaranteed rates.

Technically, you can access your cash before then, though there are heavy interest penalties if you do so. offers three per cent fixed for three years or 3.1 per cent for five, although at current paltry rates, tying up for two years longer for a smidgeon more interest is questionable.

For Santander 123 customers,’s Major ISA is two years at three per cent, plus a gimmicky, one-off 0.1 per cent bonus if Rory McIlroy wins a golf major in the next two years.

6 Once in, it’s tax-free, year after year.

It’s important to understand that the gain isn’t just for this year. Once in an ISA, your savings remain free of income tax, year after year.

7 You needn’t stick to one provider.

Just because there’s a rule saying you can only have one new cash ISA per year, don’t make the mistake of thinking you can only have one cash ISA. Even if you already have an ISA, you can open a new one now with a different provider.

8 Don’t leave your old ISAs languishing at pitiful rates.

ISA providers love us to think once our money’s in, it’s a done deal, but it isn’t. You are allowed to transfer past years’ cash ISAs to the new best buys. If you’ve a sizeable sum saved, this is well worth it.

All the deals above, except Coventry Building Society, allow you to transfer old cash in too. In fact, this is one area when consolidating old and new money in one ISA is a good idea.

The way rates tend to drop after a year means that will make it administratively easier to deal with.

Also, bundling the cash together can mean you get better rates. For example, existing First Direct customers with more than £40,000 in cash ISAs can get three per cent easy access, smashing other best buys.

Never withdraw the cash to transfer or the money is no longer in an ISA. If you redeposit it, you will use up this year’s allowance. Instead, ask the new provider to move the money across for you. That way, it stays in the ISA wrapper.

9 Don’t delay, open now.

You can always add to it later. You may be thinking that, with a year to go until the start of another ISA year, there’s no rush. True, but the rates they pay are usually better now in order to attract custom. The sooner you start saving, the longer you’ll earn tax-free interest.

10 You’re protected up to £85,000

As long as your cash ISA is with a UK regulated bank or Building Society, the Governmentbacked Financial Service compensation scheme protects it up to £85,000 per person, per institution.

This may sound like a lot for ISAs, but the key is it applies to all savings. If your ISAs and other savings in one institution top £85,000, the remainder isn’t covered. So you may want to spread your money elsewhere.