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Top tips for using an ISA account

Thinking about opening a savings account but unsure where to begin? The following guide brought to you by aims to highlight some of the most important points.

  • Generally ISA accounts protect you from paying any tax on your savings– they act as a way for the government to encourage more people to save money securely.
  • It can be confusing as to how much you can save in your ISA account. Currently most adults save up to £7,200 in ISAs annually. The whole amount can be invested in a stocks and shares ISA or you could split it and put up to £3,600 in a cash ISA. In October 2009 anybody aged 50 or over was allowed a higher annual limit of £10,200, of which up to half can be saved as cash. In order to take advantage of this, you will need to be 50 on or before April 5 this year, to benefit in the current year. On April the 6th 2010, the limit will be increased to the same amount for everybody, regardless of age.
  • Just like regular savings accounts, there are many different types of cash ISA – easy access, fixed rate and regular savings to name a few. Finding one that fills your requirements should not be hard.
  • One point to consider when saving in an ISA account is that when you withdraw the money from the account you will no longer benefit from the build up of interest. People willing to save their money for a fixed period or who can accept other restrictions on their savings could benefit from a notice account or a fixed-rate bond instead.
  • If you have another savings account elsewhere and are only using your ISA to save for the long term then a fixed rate bond account could work best for you, although these accounts tend to require the account holder paying in a lump sum rather than smaller amounts deposited more frequently. Clare Francis from moneysupermarket says, 'Whether you opt for a stocks and shares, cash ISA or both will depend on largely on your investment objectives and time horizon.'
  • If you already have a Cash ISA but have found an account which suits you better and wish to move to another provider, always ensure your account provider arranges the move for you. This will insure that you don’t lose any of the interest you have built up.
  • ISAs differ from standard savings accounts in that interest is tax free meaning that those on the basic rate tax band will see a 20% return on their savings. People in the higher tax bracket could possibly benefit more – by around 40% interest.
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