subject: Cash ISA allowances for the current tax year – 2010/11 [print this page] Cash ISA allowances for the current tax year 2010/11
Investing in a cash ISA may seem like a daunting task at first. With all the banks claiming to offer the best ISA deals in a bid to lure savers, it pays to do your research and check the best buy tables online or in the press. And you will need to be aware of exactly how much you can invest each year, to make sure an ISA is right for you.
Cash ISA allowances for the current tax year 2010/11
Under the current ISA allowance (until 5 April 2010) you can save a total of 10,200 tax-free.
Half of this (5,100) can be saved in a cash ISA, while the rest can be invested in an investment ISA. Of course, you don't have to make use of the full allowance available to you, but if you don't use it by the end of the tax year, it will be lost forever.
Cash ISA allowances for the forthcoming tax year 2011/2012
From 6 April 2011, the ISA allowance increases to 10,680. Up to 5,340 can go into a cash ISA.
Allowances for Investment ISAs
While you are limited to investing half of the total allowance in a cash ISA, you can choose to invest anything up to the full amount (10,200 for 2010/2011 or 10,680 for 2011/2012) in an Investment ISA (also known as a stocks and shares ISA). But this will reduce the amount you can put into a cash ISA. For example, if you choose to invest 8,000 in an Investment ISA, you will only be able to invest the remainder of the allowance (2,200 for 2010/2011 and 2,680 for 2011 / 2012) in a cash ISA.
Investment ISAs allow you to invest in the stock market and so have the potential to outperform cash savings but you need to be aware that the value of your investment will rise or fall accordingly, meaning you could end up with less than you invested.
Where should I start?
The best place to start is with a cash ISA. Look around for the one which is best suited to your needs. Some cash ISAs allow you to manage the account online and, with most, you can move money in and out if necessary. This means they are a great way to put money aside for emergencies or holidays.
But it should be noted that if you regularly move money in and out of a cash ISA, you are still bound by the rules of the total allowance. So you cannot deposit more than a total of 5,100 for 2010/2011 (or 5,340 for 2011 / 2012) into your cash ISA throughout the whole tax year.
How many cash ISAs can I have?
There is no limit on the number of ISAs you can hold but you can only open and subscribe to one cash ISA and one investment ISA per tax year. This could be a cash ISA with one provider and an investment ISA with a different provider, or both with the same provider. However, be sure that you don't exceed the maximum amount you're allowed to put into ISAs each year up to 10,200 in total, including up to 5,100 in a cash ISA in the current tax year.
Some cash ISA accounts have bonuses which come to an end at a defined point which could result in an account reverting to a lower rate, so you could consider moving these pools of money around to get the best return
Summary
You can compare the best ISA deals online and watch out for introductory offers around March and April when banks fight it out to lure in ISA savers.
Saving in a cash ISA is one of the few ways to beat the tax man, so it's a sensible and easy way to save your money.
Remember, eligibility for tax relief within an ISA, and the benefit of this to you, depends on your circumstances, and the rules around ISAs could change in the future.
It's important to think about your attitude to risk before investing in an investment ISA because the returns are not guaranteed, and you may end up with less money than you originally put in because the value of investments can go down as well as up.
This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.
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