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Open up to ISAs

Don't throw away your tax-free money, says Alison Brace. Now is the perfect time to spring into action

It may be spring-clean time, but a lot of us are slack about putting our financial houses in order. According to studies by Nationwide and Lloyds TSB, we're as limp as a wind-blown daffodil when it comes to making the most of our tax-free savings allowance.

Lloyds TSB found that nine out of 10 adults are not using savings up to their ISA limit. And Nationwide estimates that we could be paying more than pound;230 million extra in tax by failing to take advantage of our ISAs.

So is it that most of us just haven't got the money to set aside? Not according to Lloyds TSB - one in three non-ISA holders questioned admitted they have at least pound;1,000 worth of savings.

If the savings are not in an ISA, it's tantamount to throwing away free money. And if you have an ISA that is not paying the top rate of interest, think about transferring it to an account that does.

Lloyds TSB found that 27 per cent of savers questioned did not realise that it was possible to switch ISA providers and one in six thought it was only an option at the end of the tax year.

Victoria Sill, head of French at Cranford Community College in Hounslow, Middlesex, and a part-time broadcaster for local radio stations, has saved the maximum amount in an ISA since they were introduced in 1999. She has never moved from the building society where she first opened the account.

"It's quite confusing and time consuming," she says. "As a teacher you just haven't got the time."

But as Moneyfacts, a financial data firm, points out, not switching can cost you dearly.

"Consumers could potentially have saved up to pound;27,000 in tax-free savings since ISAs began in 1999," says Rachel Thrussell, the head of savings. "Transferring to an account paying just 0.1 per cent higher interest could make a big difference." So there is no excuse. Start by using the comparison websites to find out who is offering the best deals.

The banks and building societies roll out the red carpet at this time of year, luring us through their doors with the incentive of whopping interest rates of 6.10 per cent and more.

According to Moneyfacts, 80 per cent of mini cash ISA products have had rate increases since the beginning of January.

If, however, you feel nervous about falling interest rates, then it is worth considering a fixed-rate option.

Eight out of 10 ISA holders told Lloyds TSB that they would prefer to have a guaranteed fixed rate on their cash savings as opposed to one linked to the base rate. The Financial Services Authority, the Government's financial watchdog, warns that top rates of interest with some firms may be dependent on buying another product from them, which is not as competitive. Or the higher rate may be only be around for a fixed period of time.

Make sure you read the small print to avoid any hidden catches. You can invest pound;3,000 in a cash ISA and pound;4,000 in a stocks and shares ISA during the tax year - April 6 to April 5. You cannot invest in more than one of each in any given year.

From April 6, however, the limits are set to increase to pound;3,600 in a cash ISA and up to pound;7,200 in a stocks and shares ISA. The overall tax-free savings limit, however, is pound;7,200.

Don't miss your chance - switch any savings in an ordinary account to an ISA before April 5 and save tax. It's sure to put a spring in your step.

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