The new tax year is almost here, meaning you've only got until 5 April to make the most of your 2013/2014 ISA allowance before it's lost forever.
An Individual Savings Account (ISA) lets UK taxpayers enjoy tax-free returns on the money they put in their ISA. Each tax year, every adult in the UK qualifies for an annual ISA allowance - but you can't roll it over so it must be used within that tax year.
If you've built up a savings pot that isn't in an ISA, it makes sense to switch. If you're a basic rate taxpayer, you'll avoid paying income tax of up to 20% on any interest your savings earn. If you're in the higher-rate tax band, you'll save yourself 40% on any interest you earn.
How does an ISA work?
You can invest in up to two separate ISAs in any one tax year: a cash ISA and a stocks and shares ISA, and can choose the same or different companies.
A cash ISA pays you interest on your savings, just like a bank deposit account. A stocks and shares ISA generally aims to give you a higher rate of return than you would earn from a typical deposit account; however, there's a risk that your money may go down as well as up.
For the 2013/2014 tax year, you can still save the full allowance - £11,520 - in a stocks and shares ISA or up to £5,760 in a cash ISA.
If you invest in a cash ISA, you can put the remainder of your ISA allowance into a stocks and shares ISA. For example, if you invest £2,000 in a cash ISA, you'll have £9,520 left to invest in a stocks and shares ISA in this tax year.
Whether you want to use your full stocks and shares ISA allowance or just your cash allowance, you've only got until 5 April to do so for the current 2013/2014 tax year.
From next tax year, which starts on 5 April, the ISA allowance will increase to a total of £11,880, of which up to £5,940 can be invested in a cash ISA.
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