Save with an ISA before it is too late

With the end of the tax year approaching, time is running out to set up your ISA for the coming year. And with some excellent deals available on the ISA market, this is not a year to miss out.

Over the past few months we have advising our readers to tighten their belts a little as the country rides out the current economic turbulence. And the most recent soundings from the other side of the Atlantic suggests that there could be a few more tough months ahead.

So, we say that 2008, or at least the next few months, should be a time for saving rather than borrowing. Not only is it in your interests to be prudent with your cash in the current economic climate, it is also a good time to get your money working for you in a savings account or, better still, an ISA.

Interest rates are at an attractive level for savers. At the start of this year we highlighted some attractive ISA offerings. Also, the Government will sweeten the deal in the forthcoming Budget by raising allowances from £3,000 to £3,600. With the ISA deadline coming on April 5, it is time to get moving on this if you haven't already.

However, figures show that the ISA uptake this year is slow, with millions missing out on the gains offered by cash free savings plans. According to research carried out by price comparison website moneysupermarket.com, only 32% of Brits plan to invest in an ISA this year and only 27% know about the increase in allowances mentioned above.

“It is disappointing so many Brits won't take advantage of this excellent savings vehicle. With just a third of people looking to utilise their tax free ISA allowance it looks like many people will miss out. Diligent savers can put away a tidy sum if they regularly invest in their ISA – especially now the tax free limit has been increased to £3,600. But I am concerned so few people are aware of this uplift. The extra 20% they can save could really boost gains over the years,” says Kevin Mountford, head of savings at moneysupermarket.com.

What is an ISA?

If you are unfamiliar with what an ISA is, basically it is a savings account that is tax free up to certain limits. You can invest your money in cash, stocks and shares, or both. We explained your options and your limits in more detail in our January article on ISAs.

“Not surprisingly in the current climate, the smart money seems to be going on cash investments with almost three quarters of investors favouring cash over stocks.

Given the recent market turmoil, it is unsurprising people are leaning towards cash ISAs. People who are really nervous should stick to cash, however equity ISAs can be considered by savers looking to invest over the longer term,” says Kevin Mountford.

If you haven't thought about an ISA yet, you should start doing so in the next couple of weeks. This is especially true if you pay the higher rate of tax as it amounts to an extra 40% on interest earned in your ISA account.