Grab a last-minute ISA

Whether it's booking a holiday, buying your Christmas presents or revising for an exam, if you like to do everything last minute, chances are you'll still have some of this tax year's individual savings account allowance to invest.

Every adult has an annual allowance of £7,200 to invest into ISAs. This rises to £10,200 next tax year, unless you're 50 or over before 6 April 2010, in which case you'll already have the extra £3,000 to put away.

Of this, you can put up to £3,600 (or £5,100 if you're 50 plus) into a cash ISA, with the remainder going into a stocks and shares ISA.

But, if you haven't used up your full ISA allowance, don't despair, there's still time to take advantage of it. The 2009/10 tax year ends on Monday 5 April (Easter Monday) and, with some ISAs, you'll be able to make a contribution right up to midnight.

"You can go right up to the wire if you're doing it online," says Patrick Connolly, spokesperson for AWD Chase de Vere.

It's certainly worth using your allowance if you can. ISAs are tax-efficient, giving you shelter from income tax on the cash element and capital gains on the stocks and shares element. There are also some income tax advantages on stocks and shares ISAs.

Although you can't claim back the 10% tax credit on dividends, so won't be any better off if you're a basic rate or non-taxpayer, there's no further tax to pay for higher-rate taxpayers.

Additionally, where interest is paid rather than a dividend, for instance on corporate bonds and gilts, this is paid tax-free.

Cash ISAs

The first decision you need to make is whether to go for a cash or a stocks and shares ISA. Connolly explains: "You should build up a cash buffer before considering investing.

This will protect you if you have unexpected expenses or lose your job. A cash ISA is great for this. Although interest rates are low, they will go up and interest is tax-free."

There are, however, a number of things to watch for when comparing cash ISAs. First up, check whether the rate is fixed or variable.

Andrew Hagger, spokesperson for comparison website, says: "Rates can be fixed for up to five years so make sure you know where your rate might go as well as thinking about how you expect interest rates to move generally."

However, just remember that if you fix you will be stuck with this rate for the length of the term regardless of whether or not interest rates on savings are going up.

Another thing to look out for are bonuses. These are relatively common and usually last for 12 months, after which the rate will drop.

"There's nothing wrong with a bonus as long as you remember to switch to another, more competitive, cash ISA once the bonus period is up," says Hagger.

If you are looking to transfer your cash ISA to take advantage of a better rate, then make sure you follow the rules to ensure you retain the tax advantages. First, contact the new provider and, providing it accepts transfers, it will give you an ISA transfer form.

Complete this and your new provider will do all the legwork on your behalf. The transfer takes about a week, although legally, it could take as long as 30 days.

You also need to be aware that, although you can split previous years' cash ISAs, you have to move all of the current year's in one go. But, whatever you do, don't withdraw the money as that will mean you lose your tax-free status.

Last-minute cash ISAs

AER Minimum
Best for instant access...
Santander* 3.5% £1 No 3% bonus for 12 months
Barclays 3.1% £1 No 1% bonus for 12 months
Best for transfers...
Newcaslte BS 3% £500 Yes 1% bonus on first anniversary
Nationwide 2.75% £1 Yes 1% bonus until June 2011

Best for fixed interest

Saga 3.9% £1 Yes Three-year fixed rate
Cheltenham & Gloucester 3.5% £100 Yes Two-year fixed rate
Post Office 3% £500 Yes One-year fixed rate
Coventry BS** 3.25% £5,100 No One-year fixed rate

Correct: 30/03/2010
* This product has nearly 'sold out' but is still available to people who have secured an in branch appointment.
** Launches on 6 April


Read Moneywise's round-up for more great cash ISA rates

Stocks and shares ISAs

If you've already got plenty of cash stashed away in ISAs then you could consider a stocks and shares one.

But you will need time on your side, as James Davies, investment research manager at Chartwell, explains: "Over time, stockmarket investments perform better than cash but, as they rise and fall, you need to be able to leave your money untouched for at least five years."

This volatility, which could mean the value of your stocks and shares ISA falls, also means that you need to be comfortable with this.

If you're going for a stocks and shares ISA, there's plenty of choice. As well as some 2,000 or so funds to pick from you could also go for an investment trust or design your own portfolio.

"Be warned, however, that many brokers will charge you if you are holding shares or exchange traded funds so look out for additional ISA charges.

"We firmly believe in no ISA fees and no hidden charges," says Rebecca O'Keeffe, head of investments at Interactive Investor. Added charges could erode any benefits so you need to consider this before you make your decision.

To help narrow down your choice, you need to weigh up your investment objectives and risk profile. Your attitude to risk is determined by factors such as how comfortable you are with losing your money as well as your timeframes.

For example, if you are saving for retirement in 30 years' time you can afford to take more risk as even with a market crash your money has a good chance of recovering.

There are general rules about where you should invest depending on your risk profile, as Davies explains: "If you're cautious then fixed interest is a good option.

This covers everything from gilts and investment grade corporate bonds through to more risky high income corporate bonds."

For a higher level of risk, equities are a good option. Connolly recommends starting with something relatively low risk for your first equity investment, for instance a UK fund or a diversified global fund then building on this.

"These funds are a good starting point but if you're a medium-risk investor then you could afford to look at more adventurous funds investing in North America or Europe for example," he adds.

At the top end of the scale sit the funds which offer the greatest risk but the most potential for return. Among these are the smaller companies, commodities, specialist sectors such as technology and emerging markets.

You could also consider holding shares directly as Hannah Edwards, head of new clients at BRI Asset Management, explains: "With direct equities you're not paying a fund manager to select investments but you are likely to experience far greater volatility."

If you're not sure where you sit on this scale, don't worry. You can pop your stocks and shares ISA allowance into a fund supermarket and leave it sitting as cash until you're ready to invest.

Melvin warns: "The taxman isn't a massive fan of this. If you held your investment as cash indefinitely you could have them on your back."

You can also transfer your stocks and shares ISAs into another stocks and shares ISA. The process is exactly the same as for cash, with your new manager asking you to complete a transfer form so it can request the money from your existing manager.

Additionally, because you're switching to a different fund, your old ISA will be sold and transferred so you'll be out of the market for a short time. 

As well as moving your existing stocks and shares ISAs around, you can also transfer your cash ISAs into stocks and shares. Again, you'll need to complete a transfer form with your new provider to start the process.

Just bear in mind that whether you're moving a cash or a stocks and shares ISA, if you're moving this tax year's ISA you must transfer everything you've saved into it.

Last-minute ISAs

So how do you actually bag a last-minute ISA? With 5 April falling on the Easter bank holiday, bagging that last-minute ISA might not be so simple this year.

Take Santander, which had the top cash ISA rate at the beginning of March, as an example. Its branches will be open on Saturday 3 April, with a limited number open on Monday 5 April, but it is stressing that customers should sort their ISAs earlier if possible.

"The last working day before the tax year end is Thursday 1 April so we recommend customers open and deposit into their ISAs for this tax year well before this date to ensure they don't miss out," says Reza Attar-Zadeh, director of savings and investments for Santander.

Going online will give you more time and flexibility.

To complete an online application you'll need your national insurance number and cleared funds in your bank account. It's also worth making sure everything's in order before you start filling in your application.

Also check the terms and conditions first if you're leaving it late. For example you can apply for First Direct's cash e-ISA right up to midnight on 5 April, but it's only available to existing customers.

Discovering you need to open a new bank account at 11.30pm on 5 April could seriously reduce your chances of taking advantage of this year's ISA allowance.


* M&G Optimal Income
Fund manager: Richard Woolnough
Recommended by James Davies, investment research manager at Chartwell. He likes this because it is very flexible and can invest across fixed-interest securities as well as holding a small amount of equities.

* Invesco Perpetual Corporate Bond fund
Fund managers: Paul Causer and Paul Read
A solid fixed interest fund with two experienced fund managers and is recommended by Carl Melvin, managing director of Affluent Financial Planning.

* JO Hambro UK Opportunities fund
Fund manager: John Wood
Hannah Edwards, head of new clients at BRI Asset Management, plumps for this fund. Although an equity fund she says it has a strong track record and its manager, John Wood, a former accountant, is regarded as a safe pair of hands.


* First State Asia Pacific Leaders
Fund manager: Angus Tulloch
This fund invests across the Asia Pacific region including the likes of Australia as well as emerging markets such as China and the Indian subcontinent. James Davies, investment research manager at Chartwell, likes this fund for its mix of markets but also for the credentials of the fund managers.

* JPMorgan Emerging Markets fund
Fund manager: Austin Forey
A favourite of AWD Chase de Vere's Patrick Connolly, this fund invests in emerging markets with a strong focus on Brazil, China and India.

* Old Mutual UK Select Smaller Companies
Fund manager: Daniel Nickols
For something closer to home, Hannah Edwards, head of new clients at BRI Asset Management, recommends this fund as a good way to get exposure to UK smaller companies.


* Neptune UK Equity
Fund Manager: Jeremy Smith
This fund's combination of big picture asset allocation and rigorous stock picking captures James Davies, investment research manager at Chartwell, eye. He adds that although it lags in good times it doesn't tend to lose as much as other funds when markets are falling.

* Cazenove European
Fund manager: Chris Rice
Patrick Connolly, spokesperson for AWD Chase de Vere, likes this fund, saying: "This would give a medium-risk investor some good diversification out of the UK."

* Lazard Global Equity Income fund
Fund manager: Patrick Ryan and team
Recommended by Hannah Edwards, head of new clients at BRI Asset Management, this fund gives broader exposure to international equities.

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