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Time to move if you want full benefit of ISAs

As tax-free savings deadline looms, make sure you review old accounts

New year resolutions may have been nearly forgotten but if sorting out your finances was on the list, pay attention because the ISA (Individual Savings Account) season is upon us.

The past week or so has seen a flurry of launches with new fixed-rate ranges from Santander and Leeds Building Society, plus a new Junior ISA from Lloyds TSB and, this week, a new ISA from M&S Money.

The banks must be feeling a little more generous this year too; the average top five cash ISA rate is up 7 per cent, rising from an average rate of 2.83 to 3.03 per cent, according to MoneySupermarket.

With just a few months until the end of the current tax year, if you haven't maximised your ISA allowance, a not-too-shabby £5,340 can be invested in a cash ISA, increasing to £5,640 for the 2012/13 tax year. So now is the time to start looking because if you don't use it, you lose it.

"Despite the end of the tax year being two months away, it is great to see that the top paying rates on cash ISAs are already ahead of those from the same time last year," says Kevin Mountford, the head of banking at MoneySupermarket.

"Anyone who has not opened an ISA yet can take advantage of these great rates and benefit from two months' interest rather than wait until the last minute to use their allowance."

A high rate is offered by the Cheshire BS Direct Cash ISA (issue 1) paying 3.06 per cent. However, this includes a 2.06 per cent bonus until 30 September 2013, so you will need to switch again when this comes to an end. The account can be opened with a minimum deposit of £1,000 (by cheque) and access is by post only, so while this isn't a fixed-rate account, it doesn't really fit the bill for instant access.

For the sake of a tiny drop in the rate, the AA's Internet Access ISA pays 3.05 per cent (including a 1.35 per cent bonus for one year) on minimum deposits of just £500 and can be operated online. The new offering from M&S is also worth a look, paying 3 per cent, with no fixed term. It also has a cash ISA with a one-year term paying 3.25 per cent.

Advisers suggest that if opening a new account now, you put a note in your diary to review any of these accounts next year and see how they fare against the latest deals.

"When you buy a new ISA, set yourself a reminder to review it when that maturity rate comes to an end. Once that drops off, the rate could be very poor and the onus is on you as an investor to do something about it," says Adrian Lowcock from independent financial adviser Bestinvest.

If you have savings in previous years' ISAs, it is also important to give these the once over as there is a good chance your money is languishing in an account paying a lowly rate. Switch to a best buy and make it work much harder. Top rates here are available from Newcastle BS and Virgin paying 3.05 per cent and 2.85 per cent respectively on balances of £1 but remember to follow the ISA switching rules.

As soon as a new tax year starts on 6 April, you are free to put that entire year's allowance in an account but you can only open a cash ISA with one provider in a tax year. However, you are free to hold various cash ISAs from previous years with different providers, so each year you can pick the top-paying accounts, regardless of who is providing them.

Crucially, you are free to transfer your old ISA money but you will need to check that the account you forward to allows transfers in. Never simply take out the cash and deposit it directly as you'll lose the tax-free benefits. You can even split old ISA money between different providers or between cash and shares ISAs.

If you're willing to lock your money away for five years, you can increase your rate to 4.25 per cent with the BM Savings Fixed Rate Isa Saver (postal account).

If five years seems like a stretch too far, the best-buy rates fall to: 4.1 per cent with the Halifax four-year fixed; 3.8 per cent with a three-year fixed from Aldermore (it also has a one-year product); and 3.6 per cent with the Post Office's two-year fixed. All of these accounts also allow transfers in from previous years.

If you only want to fix for one year, Metro Bank pays 3.25 per cent from £1 upwards and can be accessed through the post or branches. Alternatively, Leeds BS pays the same rate from £1 but does not allow transfers from previous years.

Despite some good rates on offer now and the opportunity to earn two months worth of interest, if you're in no hurry to get moving and you are confident you won't forget nearer the time, Rachel Springall from Moneyfacts.co.uk says it may pay to hold off for a few weeks and see if any of the big players bring out better offers.

"The majority of the best buy ISAs tend to appear around mid to late March when the ISA season is in full swing. In previous years, ISA providers (often the larger names) have tended to wait to see what new deals their competitors launch before showing their hands," she says.

Expert View

Adrian Lowcock, Bestinvest

"Each year make sure that you are keeping on top of all your Individual Savings Accounts. The key to getting the most from your tax-free income is making sure that you have found the best products and transferring old ISAs should be part of this process. Old ISAs are more important than this year's ISAs in some respects – how many thousands could you have lying around that are not earning you much?"