Money: A beginner's guide to making the most of your ISAs

ISA providers are jostling for savers' attention ahead of the the new tax year in April - and the market is looking brighter for savers, with some providers increasing their rates.

The average cash ISA rate, including fixed and variable deals, stood at 1.32% in early March, according to Moneyfacts.co.uk. A year ago it was 1.13% - and a year before that, in 2017, it was a paltry 0.82%. Rachel Springall, a finance expert at Moneyfacts, says "table-topping" deals have appeared recently, adding: "ISAs are clearly undergoing a period of recovery, and right now we're seeing some of the best ISA rates for some time."

ISAs have traditionally had advantages over other types of savings accounts, as money in them is ring-fenced from tax. But the personal savings allowance, introduced in 2016, means up to £1,000 of income from savings is now tax-free for basic taxpayers - so people can save their money in non-ISA accounts and still pay no tax on their interest. Higher-rate taxpayers have an allowance of up to £500.

However, money held in ISAs is ring-fenced from tax for as long as it stays in there - whereas in the years to come, savers with money in non-ISA accounts may one day find themselves paying tax on interest. The annual ISA allowance is currently £20,000.

Unsure where to start or which direct to take with your ISA saving? Here's how to make the most of what's on offer...

Decide what type of ISA you want

ISAs have evolved greatly over the years. As well as the simple choice of cash or stocks and shares ISAs, there are Junior ISAs for children.

There are also Innovative Finance ISAs, which contain peer-to-peer loans (peer-to-peer lenders match up people looking to invest some cash with those who want to borrow). The rates of return can potentially be much higher than those on cash ISAs - however, there are risks which need carefully weighing up. You may also want to think about keeping some ISA savings in cash, where it could be accessed in the short-term, and some invested elsewhere for the longer term.

Shop around

If you haven't checked out ISA deals for a while, now could be a good time. "It's encouraging that the market is moving in the right direction, far from what it was in 2017, which was the worst year we had ever seen for the interest paid on cash ISAs," says Springall. "It's easy to switch ISAs and most of the best deals allow transfers in from other cash ISAs, so this should be taken fully advantage of to get the top rates."

She suggests savers check terms and conditions before arranging a move from one ISA to another - and be careful not to cash in the account to reinvest, as the money will lose its tax-free status.

Think about the long term

ISAs can help you save towards a longer-term goal, such as buying a home or retirement. Stocks and shares ISAs may produce higher returns over longer periods than keeping savings in cash. Savers would need to be prepared to endure the ups and downs of the market, which could mean losing some money. Sarah Coles, a personal finance analyst at Hargreaves Lansdown, says that, alongside pensions, ISAs can be a "vital part of the retirement income jigsaw". Depending on the rules around your particular product, you could potentially dip into ISA savings before you access your pension, which could top up your income if you're considering going part-time before you retire for good.

Meanwhile, there's the Lifetime ISA, which is designed for people buying their first home or saving for retirement and comes with a government bonus. But there are restrictions around withdrawals which need consideration, as charges could apply. There is also the Help to Buy ISA for first-time buyers, which has a government bonus too.

Consider whether or not to put all your eggs in one basket

If you're worried about the ups and downs of investments in a stocks and shares ISA, you could consider spreading your savings. Emma-Lou Montgomery, associate director for personal investing at Fidelity International, says: "The benefit of a stocks and shares ISA is that it allows you to spread your savings across a range of investment vehicles, such as bonds, equities and funds. While this is a more risky option than a cash ISA, the true value of a stocks and shares ISA tends to manifest itself over the long term with returns superior to that offered by cash."

PEOPLE WOULD RATHER CUT BACK ON EATING OUT AND CINEMA TRIPS THAN FORGOING A HOLIDAY

Good news is you're hoping to fit in a city break this year - new research from Post Office Travel Money has found the typical costs of a getaway in many European hotspots have tumbled compared with a year ago. This includes Venice, Rome, Amsterdam, Madrid, Lisbon and Berlin.

A cheaper and wider choice of accommodation is said to have helped push down prices. And it seems, whatever the budget may be, holidays are a strong priority for many people this year.

A recent survey by ABTA found nearly twice as many people would sooner cut back on eating out if they needed to save money, than give up their holidays, at 25% and 13% respectively. And 18-24-year-olds were found to be most tied to their trips away, with only 6% in this age group saying they'd cut back on getaways to save money. Nearly a third (31%) said they'd curb how often they eat out instead. Similarly, 31% of people with children in their household also said they are most likely to moderate their spending on eating out.

People across the survey would also sooner reduce the amount they spend on clothing and accessories (18%) and electronic gadgets (17%) than holidays.

However, leisure activities, like going to the cinema and concerts, were activities people were least likely to cut back on (11%).

With 86% of people saying they took a holiday either at home or abroad last year, people are still firmly committed to their breaks. Victoria Bacon, ABTA's director of brand and business development, says: "We have always been a nation of people who enjoy taking holidays and it is clearly a spending priority for a lot of people, often overtaking other popular items and leisure activities.

"For those looking to go on holiday this year, but who are a bit conscious of cost, then it's really worth having a look at the deals and offers available at the moment. Many travel companies still have holidays left with free-child places or money off for summer breaks, and 60% of UK travellers say they booked a package holiday last year because it was the best value option for the price."

POUNDNOTES

Financial fact: The Financial Ombudsman Service (FOS) will soon be able to order firms to pay higher amounts of compensation to consumers and businesses. From April 1, the current £150,000 limit will increase to £350,000 for complaints about actions by firms on or after that date, the Financial Conduct Authority (FCA) has confirmed. For complaints about actions before April 1 that are referred to the ombudsman service after that date, the lower limit will rise to £160,000. The FCA has also confirmed that both award limits will be automatically adjusted every year to ensure they keep pace with inflation.

NEW TRIAL WILL SEE NATWEST AND RBS CUSTOMERS PAY WITH FINGERPRINT

NatWest customers will be able to verify card payments using the touch of a finger in a trial taking place in the coming weeks. The bank said it is piloting a 'cutting edge' biometric fingerprint bank card with 200 customers. In Scotland, the trial will involve customers of Royal Bank of Scotland. Bank cards used in the trial will store information which means people can verify payments by placing their finger over a box on the card, which is then swiped at the till.

THREE-QUARTERS OF SAVERS 'DON'T KNOW WHERE BANK INVESTS THEIR MONEY'

Three-quarters of savers say they have no idea where their bank lends or invests their money, a survey by Triodos Bank has found. More than half (55%) say they would switch banks if they found their money was being lent or invested in areas that negatively affect people or the environment. Women were more likely to say they would switch if they found their money was having a negative impact on the environment or society.

CARS AND PETS HIGH ON RENTERS' PROPERTY SEARCH PRIORITIES

Renters searching for properties are particularly keen to find a suitable home for their car and their pets, research suggests. Property website Zoopla analysed data from its keyword property search tool to find the most sought-after features of a rental home across Britain. 'Parking' was the most popular search word, followed by 'garage' and 'pets'.