How to save £100 in tax with the right cash ISA

family in the park

family in the parkIf you have money in an ordinary savings account, you might want to consider switching your spare cash into an ISA, as you could save almost £100 in tax.

Here’s an interesting case study to consider.

Coventry building society’s Online Saver 2 pays interest of 3.15% and is one of the leading standard savings accounts. A basic rate taxpayer who deposited the maximum ISAs allowance of £5,340 into the account would earn annual interest of £134.57. A higher rate taxpayer would earn just £100.93.

But if they switched to one of the top easy access cash ISAs at 3.5%, the interest would be tax free and they would both earn £186.90, boosting their return by up to £86.

Fixed-rate ISAs currently pay the highest rates of interest, but you have to be prepared to lock your money away for the full term.

The Halifax ISA Saver, for example, pays a fixed rate of 4.5% for five years. Or there’s Santander’s two-year fixed rate at 4%.

Savers who prefer the flexibility of an easy access ISA can earn 3.5% with Cheshire building society, NatWest and the AA.

You don’t have long to make the most of your ISA allowance as the tax year ends on April 5. Remember too that you can only open one cash ISA in any one tax year. But you can switch to a better deal if you find an account that pays a higher rate, as long as the new bank or building society accepts transfers.

Find out how to change your ISA, how to invest in a stocks & shares ISA, and other ways to keep your money away from the tax man!

Naomi Caine was editor of The Sunday Times Money section for six years before she moved out of London to bring up a young family. She now juggles two children with a freelance career, and has written for a variety of publications, including MSN, Yahoo, The Times, The Sunday Times, Which? Money, Money Week and The Sunday Herald.