Cash ISAs: make the most of your money this tax year

Savers could be nearly half a million pounds richer if between the ages of 25 and 65 they were able to put away £3,000 a year in an ISA.

Kevin Mountford, head of current accounts and savings at moneysupermarket.com, said: “With the ISA deadline looming and less than a month left before the end of the tax year people should get their skates on to make the most of this no-brainer savings scheme. Our research shows that savers who put aside just £250 a month over the course of their working lives could amass a total savings pot of nearly £500,000, of which £354,000 is interest alone.”

“While cash ISA savers are still restricted to putting aside the relatively small sum of £3,000 a cash ISA is still the best place for tax-protected savings. For anyone able to raise £3,000 as a lump sum there is a choice of providers offering pretty attractive rates on mini-cash ISAs with the benefit of easy access.

“I advise savers looking to make the most of their cash year in and year out to adopt the following savings practice: firstly seek the highest interest rate paying savings account for their cash. Secondly, once they have pocketed the interest made, they should look to swap their investment into a tax-free cash ISA ahead of the deadline. This nifty method of saving will maximise their interest earnings and allow them to take advantage of one of the many competitive regular saver accounts available with rates as high as 12.5 per cent.”

Most regular saver accounts are available for one year only and allow a maximum monthly investment of £250 – which co-incidentally adds up to the cash ISA annual investment limit of £3,000. Therefore, it makes sense to get into the habit of saving monthly in a regular saver account – which produces a higher net rate (for basic rate tax payers) than the gross rate available on some current ISA offerings - then switching the balance in 12 months into a cash ISA. Savers can then start another non-ISA regular saver.

Kevin continued: “Those with a lump sum to put away ahead of the ISA deadline should make the most of the tax-free allowance and put the money into a leading cash ISA, such as the Alliance & Leicester Premier ISA at 8.1 per cent AER. However, if you are moving the money from another account make sure you are not penalised for doing so.”