4 Ways to Make the Most of Your ISA

written by: Carlene Shatley; article published: year 2010, month 05;

In: Root » Legal and finance » Taxes

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Most financial advisors encourage their clients to have at least one ISA acting as a tax shelter for savings income or investments.
These accounts offer the ability to deposit money every year, up to a maximum amount set by the FSA.
As you earn interest or dividends on your ISA, you do not have to report your earnings to the taxman.
You also enjoy full use of your money at any time, since these accounts do not typically include restrictions for withdrawals.

To ensure you are getting the most out of your ISA, take a peek at these four easy tips.

Maximize Your Contributions

The more you put into an ISA, the more you earn; and the more you earn, the more taxes you can save.
Currently, the maximum deposit allowed for an ISA each year is £7,200 for people under 50 and £10,200 for people over 50.
During the next tax year, the maximum contribution amount will be £10,200 for everyone.
Of this amount, half can go into a cash ISA.

Shares ISAs can receive the full amount each year, or £7,200 for those under 50 and £10,200 for those over 50.
If you open a cash ISA and a shares ISA, the total amount contributed to both cannot exceed the contribution limits listed above.

Don't Withdraw Money

Although you can withdraw funds from your ISA, you cannot replace those funds during the same tax year if you exceed the maximum allowed contribution.

For example, someone who deposits £10,200 and then withdraws £2,000 may not replace the £2,000 during the same calendar year.
However, someone who deposits £5,000 into an ISA and then withdraws £2,000 may put the money back, since the total deposits for the year is still less than the £10,200 maximum.
To ensure you keep your full tax benefits, avoid withdrawing from your ISA whenever possible.

Choose the Best Account for Your Needs

For those wanting to invest over the long term, a shares ISA may offer the best return on the initial investment.
However, those who need their money readily available may find a cash ISA suits their situation best.
When you choose the best ISA for your needs, you ensure you don't have to pay any unnecessary fees or penalties on your account, leaving more money to earn a return for you.

Always Shop for the Best Rate

It stands to reason that you would initially shop around for the best rate when you open your ISA.
However, since ISA money can be transferred to a different ISA any time, it pays to keep your eye on the current rates and move your account as you see fit.
This is particularly true if you take advantage of a bonus rate that is only good for a period of time.
When that rate expires, it may be time to move your money to a different manager to continue to earn a good return on your investment.

Opening your ISA is just the beginning.
The next step is to manage your account wisely so you get the biggest bang for your tax-free savings buck

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