Money tip #124 – Take out your cash ISA at the last minute

 When it comes to tax concessions they are few and far between these days. So it is important that if you plan on saving that you consider sheltering your cash in a cash ISA as any interest will then be paid tax free, unlike normal savings accounts where any interest is taxable. The result is that you need to achieve a much lower interest rate in order to match inflation – the enemy of savers as it erodes the spending power of your money, as shown in the table below:

	Cash ISA savings rate needed to match inflation	Interest rate needed from a standard savings account to match inflation
20% income tax payer	4%	5%
40% income tax payer	4%	6.66%
50% income tax payer	4%	8%

 Anyone over 16 can pay into a Cash ISAs which is essentially a tax free savings account. The trade off for the tax relief is that you can only invest a limited amount into them in any given tax year (for the 2010/2011 tax year the limit is £5,100)

So as the end of the tax year is approaching you may be looking to utilise your annual allowance.

Waiting may pay off

If you plan on shortly taking out a cash ISA you may be better off waiting until just before the 5^th April deadline (the end of the tax year) before choosing your ISA (which is only 6 weeks away). This is because competition hots up between the banks and building societies trying to push their cash ISAs. They want you money! Consequently their best interest rates deals will likely be released in the run up to the tax year end.

So waiting a few weeks might mean you secure a better interest rate on your hard earned cash.

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