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Top ISA rates for the new financial year

An egg with the word ISA written on itThe new tax year is upon us as of 6 April, bringing with it a new tax-free savings allowance.

Instead of making a last-minute dash next spring to pick an account, why not choose one now and get into the habit of making regular deposits?

Higher allowance

For 2012-13, the cash ISA allowance has been raised in line with inflation to £5,640.

This means you can put up to that amount in an ISA, safe in the knowledge that you will never have to pay income tax on the interest it earns – either this year or in the future.

Using up your allowance now – or at least getting the account up and running – has a number of advantages.

For a start, you’ll be earning tax-free interest sooner than if you wait until next spring.

And for many people, putting aside money regularly is an easier and more disciplined way to save.

The £5,640 allowance means you can save up to £470 a month into your ISA.

Setting up a standing order to move any spare cash from your current account into your ISA as soon as you get paid means there will be less opportunity to spend it.

Move your money

Remember that ISAs are not just about new savings. You should also make sure that any ISA deposits from previous years are earning as much interest as possible.

For example, if you opened an ISA a year ago, there is a chance that any introductory bonus will be coming to an end around now.

A lot of banks and building societies offer higher rates for a limited period on savings accounts, including tax-free savings accounts such as ISAs, in order to attract business.

Beware bonus rates

They hope that, once the rates have fallen back, customers will forget about the bonus and leave their cash where it is.

So check the rates any existing accounts you hold to make sure you aren’t falling victim to this trick.

Nerys Lewis, head of money at Confused.com, says: “Make sure you’re getting the best rate by keeping track of any introductory bonuses.

“Typically accounts offer the best rates only for the first 12 months, so your ISAs from previous years could be letting you down.”

Great rates still on offer

The good news is that many of the market-leading rates that were available in the run-up to the end of the 2011-12 financial year are still on offer.

If you set up an ISA earlier in 2011-12, the rules mean you won’t have been able to take advantage of these deals, as you can only open one new ISA per tax year.

But as of 6 April, 2012 - the start of the 2012-13 financial year - you can now move any or all of your old ISAs into these deals, provided they allow transfers in. Not all ISAs do.

Five of the best

• Best for instant access - Santander’s Super Direct ISA Issue 5 pays 4 per cent a year, but you need to be a customer already. If you’re not, Principality Building Society's e-ISA Issue 3 offers 3.1 per cent and can be opened with £1. Both accept transfers.

• If you have £1,000 or more to deposit and are not a Santander customer, Chiltern’s Gold Nuggets instant access ISA offers 3.5 per cent, but does not accept transfers.

• Saga’s One-Year Fixed-Rate ISA pays 3.6 per cent but you won’t be able to access your cash until 2013, and you can’t transfer your old ISAs.

• If you’re happy to tie your cash up for longer, you’ll get better returns. Halifax's Three-Year Fixed rate ISA Saver pays 4.25 per cent, although you need at least £500 to start the account off.

• To get an interest rate of 4.5 per cent a year, you’ll have to tie your money up until 2017 with Halifax’s Five-Year ISA Saver Fixed. Here, the minimum opening deposit is £500. Both these Halifax deals accept transfers from existing ISAs.

All information correct at time of publication.




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Chris Torney

Chris Torney

Chris is personal finance editor at the Daily Express. He's been a journalist for more than 10 years and contributes to a wide range of finance and business titles.Read more from Chris



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