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Published on March 25th, 2015 | by Pete

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Making the most of your ISA

There’s currently less than two weeks left to take advantage of your £15,000 ISA allowance to avoid tax on your savings. Investing your savings in an ISA before 6 April 2015 will allow you to gain tax-free interest on your cash.

While those with very large savings may find the help of an independent financial adviser useful for managing their cash ISA, for many it’s a subject that’s simple enough to investigate on our own in order to reap the benefits.

Increases to your allowance

July 2014 saw a massive increase to the amount of cash you could invest tax-free, from just £5, 940 up to a massive £15, 000. It’s even set to increase again this April to £15, 240. Anything you save up to this amount will gain interest that will not be raided by the tax man, making them one of the most cost-effective savings methods.

If you didn’t know about the increase, and had already maxed out your ISA with the previous £5,940 capped amount before July, you have until before 6 April 2015 to fill it up to the new £15,000 threshold and take advantage of the increase.

In your best interest

In an ISA, you keep 100% of the interest of the interest on any savings up to the threshold. Therefore, if you’re expecting £100 worth of interest, unlike other savings accounts (where you would be hit with a 20%-40% tax rate and only gain £60-£80), you will gain the full £100.

Anything over the threshold will be taxed at your regular income rate. But remember: as soon as the new tax year rolls around, you can deposit anything from £0-£15, 240 on top of your previous tax-year’s savings, and they’ll be tax-free too.

Check your rate

Currently, the rates on cash ISAs are looking rather low, but many historical ISAs are stuck on even poorer, antiquated rates, meaning you might not be making the most of your savings.

You do have a right to transfer your savings into a brand new ISA, taking advantage of new rates. Plus, if you’ve got ISA savings scattered around different accounts, compiling them together in one could see greater gains for you, as well as making it easier to transfer in the future, taking even greater advantage of varying rates.

You can only open one cash ISA per tax year, so once you’ve found a provider that looks right for you, they will be able to assist you with a transfer.

Accessing your cash

Many people are nervous about investing in a cash ISA as they are worried they won’t be able to get hold of their cash if they need it in an emergency. But there are easy-access ISA options available.

A fixed option will secure your savings for a set period, at a fixed fee; while these are usually where you’ll find the best rates, you can still choose to invest in an easy-access ISA. While rates may not be as rewarding, they provide peace of mind that you can access your cash if you need to.

A word of caution: withdrawals aren’t counted towards your allowance. So for example, if you invested £10, 000 in one tax year, and withdrew the whole amount, your allowance will still only be £5, 000 (or £5, 240 from April). This has changed with the 2015 Budget speech, but for this tax year the rules are set, so only take it out if you know you won’t be putting it back in.

Use an IFA to make the most of your ISA

As with most savings and investment methods, making the most of a cash ISA can be boosted with the help of an independent financial advisor. They will be able to lay out all of your savings, find the best accounts and rates available to you, while splitting out the cash for you in the most cost effective way.

You’ll pay for their services, but for those with a large amount of savings, the costs can often be outweighed by the gains you could achieve.

Ryan Smith is part of the content development team at Local Financial Advice, connecting people with independent financial advisers in their local area, to help them achieve their financial goals.

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