Make sure you cash in on competing ISAs

THIS year’s individual savings account (ISA) season is in full swing, as banks and building societies try to lure canny savers.

The market for the tax-free savings accounts has been buzzing since the start of February, with 82 new launches or rate increases, according to Moneyfacts.co.uk.

Patrick Connolly, at AWD Chase de Vere, the independent financial adviser, says: “Everybody should have at least some cash savings, and using cash-ISA allowances will ensure that all interest is received tax-free.

“Even with the low interest currently on offer, cash ISAs can boost returns both now and into the future as, at some point, interest rates will rise.”

You can stash up to £10,200 into ISAs in the 2010-11 tax year, which ends on 5 April, of which half can be saved in cash. So, what’s on offer – and what should you be considering?

FIX FOR TOP RATES
The best rates are on five-year fixed rate ISAs: Northern Rock pays 4.3 per cent over five years. However, Michelle Slade at Moneyfacts says: “What may seem a competitive rate now may be less so in a few years’ time when the bank base rate has risen. Most savers make shorter-term commitments of around one year, so they can regularly review their rates.” Barnsley building society pays 3.2 per cent on its one-year fixed online deal, while Nationwide pays 3.25 per cent over 18 months.

THINK ABOUT ACCESS
Do you need access to the cash? Fixed rate ISAs either don’t allow access or have hefty penalties to access funds early. If you might need access, go for a variable rate ISA. Santander’s Flexible ISA requires no notice for withdrawals and pays 3.15 per cent on deposits from £1, while Halifax’s Direct Reward ISA pays 3 per cent. If you hold your main bank account with Halifax you’ll get a 0.2 per cent bonus, taking the rate to 3.2 per cent.

TRANSFER BALANCES
If you have an existing ISA, check what rate you’re receiving. Many providers cut rates on older accounts to entice new savers with headline-grabbing rates. If you can get a better deal, transfer. Some ISAs accept transfers in, while others don’t. For example, the Santander account above doesn’t, but the Halifax account does. Use the ISA transfer process. If you take the money out and move it yourself, it will lose its tax-free status, warns Slade.

HANG FIRE
With almost six weeks to go before 5 April, it could pay to hold off.

“With many of the major financial players yet to reveal their hand, it may be worth hanging on a little longer before making your final decision,” says Andrew Hagger, at price comparison website Moneynet.co.uk. “Jostling for best-buy positions will get more frenzied during the next few weeks.”