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You've got 17 days to use your Isa tax breaks for the year

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Savers have barely a fortnight to make use of their cash Isa allowance for this tax year — or miss out on hundreds of pounds in interest.

Despite drastic rate drops by banks and building societies during the past 12 months, it is still worth taking advantage of the tax break by moving to the best-paying accounts.

Those who don’t bother to dig out a better deal when bonus rates on their cash Isa expire could miss out on as much as £124 this tax year if they had invested the maximum allowed, calculations by price comparison site Money-supermarket suggest. And if you don’t use this year’s allowance, you lose it. The cash Isa remains one of the most popular ways to save for Britons keen to put something away for the future.

Savvy saver: Despite drastic rate drops by banks and building societies during the past 12 months, it is still worth taking advantage of the tax break

In the 2011/2012 tax year, £37.7 billion was saved into these accounts. You have until April 5 to put this year’s £5,640 allowance into a savings account — the maximum allowed in cash Isas. Although the overall tax-free limit is £11,280, only half can be placed in cash. You can invest the other £5,640 in an equity Isa.

However, those who don’t need or want to save in cash Isas can invest the whole £11,280 in equities.

  More... Best savings rates: Cash Isas, fixed rate Isas, regular savings Isas How savers can beat the rate plunge: Five best cash Isa accounts that allow transfers in Our savings picks: This is Money's five favourite best buy cash Isas for 2013 How to start saving, beat the taxman and track down the best rates

Cash Isas are similar to regular savings accounts. The big difference is you do not pay tax on the interest — boosting your return by 25 per cent as a basic rate taxpayer or 66 per cent as a higher-rate taxpayer.

 

Traditionally, banks and building societies have upped the rates on their Isa deals at the end of the tax year to entice new savers.

But this year, few organisations are bothering with these juicy deals. This is because they don’t need savers’ cash because there is a new, cheaper source of money they can use following the launch of the Government’s £80 billion Funding For Lending Scheme last summer.

As a result, rates for savers have plummeted.

The average interest on an easy-access account open to new customers is 0.89 per cent — 37 per cent down on 12 months ago when it was 1.42 per cent, according to Moneyfacts.

However, you can still do better with a cash Isa than a taxable account by picking top-paying accounts.

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Justin Modray, at internet advice  site candidmoney.co.uk, says: ‘Despite the cuts we’ve seen over the last few weeks, using your cash Isa allowance is still a no-brainer.

‘The best deals on cash Isas and taxable savings accounts aren’t too far apart at the moment, so as a taxpayer you will immediately benefit.’

Your £5,640 in the Isa will earn £141 in interest over 12 months in the top-paying easy-access cash Isa, against just £83 as a basic-rate taxpayer in the top taxable account — or £58 more.

Over five years at this rate, you will benefit to the tune of £290.

For higher-rate taxpayers, the benefits are greater — they will be £78 better off a year.

The best-paying account is with Cheshire BS. You can open it online or over the telephone, but you need to run it through the post.

The deal, at 2.5 per cent, includes a 2 percentage point bonus guaranteed until July next year.

Santander Direct Isa Saver, also at 2.5 per cent, operates over the internet or telephone or through a cash machine.

Even if you stick to High Street deals, you will do better with a cash Isa. Top deals include Barclays at 2.1 per cent and Virgin Money at 2.15 per cent.

One-year cash Isa rates are still poor, with a top 2.1 per cent from Skipton BS, or 2.05 per cent from Nationwide, Halifax, Tesco Bank or Cheshire, Derbyshire and Dunfermline building societies.

That’s less than on the top-paying easy-access savings accounts.

Coventry BS’s 60-Day Notice Isa guarantees at least 2.8 per cent until December 2013 including a 0.6 per cent bonus for the first year.

You have to give the society 60 days’ notice that you want to move your money — so do so at the beginning of November to ensure you can move it if the rate drops.

Before moving your money, always double-check the Isa provider accepts new transfers in if you’ve existing Isa savings elsewhere — although most do, there are exceptions.

For example, while Cheshire BS and Santander accept cash transfers into their one-year cash Isa deal, Tesco Bank will not.


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