5 ways to get the most out of your ISA allowance

Discover top ISA tips and make the most of your moolah

The new tax year starts on 6 April each year, which makes February to April the perfect time to take a look at your Individual Savings Account (ISA) to see if your money could be working harder.

So, whether you’re an existing saver or investor who wants to get more out of your account or an ISA newbie keen to make the most of the tax-free allowance, here’s what you need to know about ISAs.

1. ISAs allow you to save or invest a hefty wedge, tax-free

In 2019, for the second year in a row, the ISA allowance hasn't risen. For a lot of people this won’t be a problem, though, because the allowance is being held at £20,000 and that’s quite a hefty chunk you can put away. You can save all or some of that allowance into cash or investments.

Ooh, and if you’re looking to save for a child then the Junior ISA was increased on 6 April 2019, from £4,260 to £4,368.

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2. You can save or invest in different ways

There’s a lot of choice when you’re saving into an ISA. If you’re new to saving or investing this way then it can seem really complicated but it’s actually fairly straightforward.

Cash ISAs

If you want to save cash then you have the same choices as you would with a standard savings account. You can open a straightforward easy access account, where you can get the money out whenever you want. Or you can lock the money away in a fixed-rate account that limits access but may pay a higher rate (as long as you don’t withdraw money early – this may result in a penalty in the form of lost interest).

If you need help getting into the savings habit then there are regular saver cash ISAs, which allow you to put aside a regular monthly amount and sometimes incentivise you to do that by paying extra interest.

Stocks and shares ISAs

If you want to go beyond saving in cash there are even more options. You can invest your money in a stocks and shares ISA – don’t worry, these are designed to be easy to use. You don’t have to be some sort of stockbroker wheeler-dealer to understand them. But do be aware: while the returns on your investment could be higher than the returns on your savings, there’s an element of risk as your investment can be affected by the ups and downs of the stock market, meaning you may get back less than you invest.

Innovative Finance ISAs

There are even Innovative Finance ISAs (where you lend your money to companies or individuals as a loan) so you can keep any peer-to-peer lending investments in a tax-free wrapper too.

Help to Buy and Lifetime ISAs

Aspiring first-time buyers can save into a government-sponsored Help To Buy: ISA that pays a bonus of £50 on every £200 saved. If you’re aged 18 to 39 you could go for a Lifetime ISA that does the same thing but lets you pay slightly more (up to a maximum of £4,000 per year) and save for a home or your eventual retirement.

There’s a lot of choice but don’t be intimidated, it’s all remarkably straightforward. And ISA providers will happily give you information on the different options.

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3. You can transfer your current ISA pot

This is important for both newbie and established ISA holders. You can transfer some or all of your ISA balances, whether cash or stocks and shares, to a better account; you don’t have to leave your existing money languishing at a less-competitive rate.

In fact, the new tax year is often a time when banks up their game to attract new customers so there can be some highly competitive accounts. Just check that the ISA you’re looking at says it accepts transfers-in and look out for any transfer charges that may apply.

Whatever you do, do not withdraw your money to pay it into the new account – once it’s out you’ll lose the tax-free status on the cash and any payments in will count towards the current tax year’s allowance instead. You must ensure you move your money directly from ISA to ISA using the bank’s transfer-in service, if you want to keep your savings tax-free.

By the way, if you choose a cash ISA, take a look at whether there’s an introductory bonus rate. When it ends, the rate may become less competitive, so you want to keep that date in mind.

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4. You can often increase your payments

If you’re making a regular payment into an ISA account then you’re doing amazingly well. Even small regular payments all add up over time.

However, since the ISA allowance has been raised so much over the last few years, you may be able to save even more if you want – and can afford – to.

If you’re paying monthly into a regular saver cash ISA, it’s a good idea to double-check what you’re allowed to do. Many regular saver cash ISAs cap the amount you can save each month but some providers have increased the amount and others now let you carry over any unused monthly allowance. That means you could increase payments or potentially even add a lump sum.

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5. The earlier the better

Saving is good whenever you do it, but with an ISA, the earlier you can save, the sooner you can benefit from the annual ISA allowance. If you have a lump sum ready to pay into an ISA then the start of the year is the optimum time to do so.

For example, if you open an account at the start of the 2019/20 tax year and you have the maximum £20,000 ready to save (you lucky thing) then a cash ISA that pays 2 percent would see you earn a tidy sum by the end of the tax year (£400).

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