Use cash ISA allowance and avoid losing interest

13 March 2012 17:40:04

The April 5th ISA deadline is fast approaching.

If you're yet to make the most of this year's cash ISA allowance, you need to move fast to avoid losing out on interest. Research by Nationwide Building Society suggests cash ISA savers are losing out on £500m in interest by failing to deposit the full amount in their tax-free savings accounts.

£5,340 allowance for current tax year
Britons have until April 5th 2012 to deposit up to the maximum amount of £5,340 in their cash ISAs. There are currently 12 million cash ISA users, according to Nationwide's research, but the average person only has £3,190 in their account. This means people are missing out on the interest payable on the shortfall of £2,150 per person - amounting to £500m in interest for the current tax year.

Of course not everyone is in a position to save this kind of money at present, with recent research by HSBC suggesting that 29% of adults are not saving anything at all. But many of us have money set aside in low-interest accounts that do not provide tax-free savings, which could be deposited in an ISA instead.

ISAs a 'fantastic' savings vehicle
According to Richard Marriott, head of savings at Nationwide, ISAs are "an absolutely great thing". He explained: "For savers, they're fantastic because you get all of the interest you earn on your savings account. On most savings accounts, you have to pay tax on the interest, but you get to keep it all in an ISA."

Mr Marriott revealed that savers are losing out on about £50 of interest per year, per person by failing to put money in an ISA. He advised: "People should really maximise the amount they save in an ISA if you can."

Finding a good cash ISA
There are many different ISAs on the market, so the first thing to do is to compare savings accounts and find a product with a good rate of return. If you already have an ISA from a previous tax year that you want to move money out of, don't forget to check whether the account you have in mind accepts transfers from other providers.

You should also consider choosing a fixed-rate cash ISA, which is likely to offer a better rate of return than an instant-access account. However, these are not for everyone, as the money will be locked away for at least a year in exchange for the higher rate of interest.

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