Savers To Prepare For Deadline For Tax Free ISA’s on 5 April 2013

Individual Savings Accounts (ISAs) are a tax-free form of investment. Your account works in the same way as a normal savings account but you will not have to pay tax on the dividends you earn.

There are two types of ISAs: Cash ISAs and Equity (Stocks and Shares) ISAs. HM Revenue & Customs provide investors an annual allowance to invest tax-free each tax year. The ISA allowance cannot be carried forward to the next tax year, so either you use it up or you lose it. For this tax year 2012/2013, investors can deposit up to £5,640 in a Cash ISA, a maximum of £11,280 in Stocks and Shares ISA, or a mixture of both.

The Cash ISA deposit must reach the banks by 5 April 2013 or you will lose the allowance for this year. You should act swiftly and not leave it to the last minute. In the future, depositing a portion of your monthly savings into your ISA to take advantage of this tax free allowance will boost your investment.

Stock ISA’s have become increasingly important for savers as equities have performed well over the past year with FTSE companies paying higher dividends. Equities are currently the investment of choice whilst bond yields are weak and interest rates remain at historic lows. Investors have continued to increase their portfolio allocation to equities since interest rates were reduced to 0.5% back in 2009. The popularity of equities is reflected in the FTSE 100 index which broke the 6,000 mark in January and now stands at over 6,300, a near record high.

UK Contractors with spare cash should take note. The 2012/13 deadline for topping up your annual ISA allowance is fast approaching. Top up your payments before 5 April 2013!