FOCUS ON Cash ISAs

Start the new financial year on the right foot by using your ISA allowance for tax-free savings

- Hayley Gilbert

HOW TO...get the most from your ISA

A cash ISA is basically a savings account, but it's one that you don't pay any tax on the interest earned, so it's definitely worth having

• You must be aged 18+ to open a cash ISA and, at the start of every tax year on 6th April, everyone in the UK aged 18+ gets an ISA allowance, which is the amount of money you can put in for that year (6th April to the following 5th April). The current allowance is £20,000. This renews the next tax year and is subject to change.

• Cash ISAs are exempt from income tax and are separate from the Personal Savings Allowance (PSA), which enables basic rate taxpayers to earn £1,000 in interest tax-free every year. Higher rate taxpayers can earn £500. Additional rate taxpayers don't get a PSA, which makes ISAs even more appealing.

• There are different cash ISAs to choose from such as 'easy access', where you can withdraw money whenever, and 'fixed rates' - these offer a better interest rate but the money is locked in for a set time.

• You can have multiple ISAs of the same type in the same tax year, but the total that you pay in must not exceed £20,000. There's no guarantee that an ISA will pay a better rate of interest than a traditional current or savings account, so you'll need to compare rates. The difference is that you don't pay tax on interest earned.

• Look for a flexible cash ISA if you want to replace cash withdrawn within the same tax year without using up your year's ISA limit. A non-flexible ISA means that if you pay in £20,000, for example, but need to take out £2,000, you won't then be able to pay that £2,000 back in within the same tax year.