Another area of comparison is to be found in what we might call household efficiency or discipline savings. How much could we be saving by organising our food shopping more carefully to reduce wastage, or by switching off our electrical devices rather than leaving them on standby? Quite a lot, as it happens.

[Read more at Which4U]

Generally speaking, the best ISA rates available on today’s savings market come with a catch – the high rates on offer are likely to fall after 12 months.

This is due to providers offering bonus rates in order to attract more custom. However, once the bonus rate expires, the level of interest paid on your savings is likely to fall significantly, leaving you earning less than you could be elsewhere.

A report from the Office of Fair Trading found that just 11% of savers that hold an ISA will switch to a new provider each year.

Savings planTax-free ISA savings accounts were first introduced in the UK 12 years ago as an incentive to encourage people to save. According to the latest figures, 17.5m people in the UK currently hold around £143bn in cash Isas.

ISA activity usually picks up around the end/start of every tax year (April 5th/6th) so competition is heightened in an effort to draw in new savers.

In April, the annual ISA limit rose from the previous level of £10,200 to £10,680 which mean savers can deposit up to £5,340 into cash ISAs and the remainder into stocks and shares ISAs or up to the full amount into a stocks and shares ISA.

Savers who currently have a cash ISA, or who are planning on opening one are being urged to check the interest rates offered and be aware of when they will fall so the account can be switched.

Fixed Rate Bonds

Meanwhile, those who are prepared to lock their funds away for an extended period of time are getting the best interest rates offered for over a year, according to Moneyfacts.

The financial information service has said that rates offered on relatively short-term fixed rate bonds have been on the rise since August last year.

The average interest rate for a one year bond I currently 2.85%, the highest level since March 2010.

This follows a rate of 3.42% offered on the average two year bond, 3.7% for 3 year bonds and 4.1% offered on 5 year bonds.

However, savers must be sure that they are happy with losing access to their funds for the agreed fixed duration, as requiring early access would result in a hefty penalty.

Topping up your ISA

With this years tax year ending on Tuesday (5 April), savers have been reminded that they have until this date to use up the remainder of their tax free ISA allowance – or they will lose it.

However, as tempting as it is to leave this until the last minute it is not advisable, as many banks offering the best ISA rates will soon run out of budget and be forced to pull these high paying accounts before the deadline.

All savers in the UK currently have an annual tax free savings break of £10,200, half of which can be set aside into cash ISA and the rest (or up to the full £10,200) into investment ISAs.This limit will rise by £480 in line with inflation at the beginning of the new tax year (6 April) to £10,680, so savers will soon be able to put up to £5,340 into cash ISAs every year.

There are a number of different types of cash ISAs available on today’s savings market, each coming with a different set of rates and restrictions, so the rate you get  will depend on which account you choose based on your saving needs.

If you are happy to lock your savings away for an extended period of time you can generally qualify for higher rates. However, these rates are not affected by changes made to the Bank of England base rate, so if  rates go up across the board you may find yourself locked in at a rate that falls below average.

This can of course work the other way, so if savers can position themselves with a decent ISA when the base rate peaks, they will enjoy higher rates than those offered to new customers either for the duration of the account, or until rates begin to increase.

Halifax currently offers an instant access ISA at the top end of the ISA tables, paying a rate of 3%. The Halifax ISA allows customers to make up to make up to 4 withdrawals per year and existing cash ISAs can be transferred across.

Nationwide is also offering 3.10% on its instant access cash ISA. The Nationwide ISA comes with no withdrawal restrictions and gives account holders the ability to transfer existing cash ISAs.

However, this ISA is only available to existing Nationwide customers, so if you don’t currently bank with Nationwide you would need to open a bank account or savings account with the building society.

If you are keen to make the most of your tax free savings allowance you should consider the share dealing ISA option. These accounts allow investors to benefit from 100% tax free returns on earnings.

Share dealing accounts offer the potential to provide far greater returns than any of their cash counterparts, but with any stocks and shares investment comes an element of risk, so you must be ready to take a gamble.

More and more banks and building societies are now offering share dealing accounts, many of which incorporate the ISA wrapper, so there is an ever-growing array of choice for investors.

All UK savers are eligible to an annual tax free savings allowance that can be used from 6 April to 5 April the following year.

Allowances cannot be overlapped across several tax years’, so the message to savers is ‘use it or lose it’.

Last year, the ISA allowance was raised to £10,200 from £7,200 for all those aged 50 and over, which was later rolled out to everyone else at the beginning of the current tax year.

Another increase to this allowance is planned for the next tax year which will become effective as of 6 April, pushing the amount at which savers can save without paying tax on their returns to £10,680.

The Bank of England base rate has continued to stay at it’s record low level of 0.5%, which has had a negative effect on interest rates offered on savings accounts.

However, ISA providers are expected to boost rates on some accounts to encourage savers to open an account with them.

The best rates on ISAs are currently paid to those that are willing to lock their funds away for a fixed period of time at a set rate – much like the more traditional fixed rate bond. These fixed rate ISAs offer an effective incentive to leave savings untouched.

●Step 1: decide on the level of risk you’re willing to take

If the current financial, economic and political climates has left you feeling uncertain, cautious, or nauseous (or all together), then attend to your symptoms with a Cautious Managed fund. This can help to offer relief from the pain of volatility – or at least, that’s what it says on the tin. M&G’s Cautious Multi Asset Fund claim to be able to help you “participate in rising asset markets while preserving capital as much as possible” – and since it was launched 3 years ago it has delivered 14.5%, outstripping the IMA Cautious Managed sector by 16.6%. The secret ingredient, known as an “active fund manager”, can “respond to the actual correlation of assets” and, in a 3-year clinical trial, minor discomfort to a 16.5% fall, peak to trough, while other leading brands lost 23%.

Disclaimer: Not every Cautious Managed funds is necessarily cautious, or well managed for that matter. May contain 60% highly correlated equities. In terms of the M&G fund, performance was gained from high-risk calls on emerging market equities, speculation on the state of the euro, dollar and other emerging market currencies, and movement away from overseas government bonds towards corporate bonds.

The side effects of out-performance may include increased underlying levels of volatility, according to the latest JP Morgan Asset Management Cautious Managed study. Investors may experience  a more unpleasant feeling of loss – 45% of investors taking IMA Cautious Managed funds between September 2008 and March 2009 lost more than 20%, with some of the more unlucky losing more than 40%.

Always read the label – but remain cautious of those that read “Cautious Managed”.

●Step 2: decide how much money you are willing to lose.

Those aged 50 and above holding concerns that losses could have a negative effect on health in retirement should consider Absolute Return funds. The key ingredients in this type of fund can position them in all directions to enable positive results to be had within stressful market conditions. Regulatory approval is currently pending on HSBC’s new European Alpha Equity fund, the offshore version which achieved growth of 13.1% in 2008.

Disclaimer: The majority of absolute return funds are untested for periods exceeding two years. For details, see www.absolutehedge.com. Note: These funds are only available over the counter following annual charges and performance fees.

Always read the label –  and hope it makes sense!

●Step 3: Think about an alternative option – investing for income instead.

If the possibility of equity price volatility and dividend cuts is making you anxious, why not consider trying out new improved bond funds. Test carried out last year showed that 9 out of 12 months saw more money being invested into bond funds than in any other sector.

Disclaimer: funds in the Sterling Strategic Bond fund sector are not guaranteed to match the prescription. Although the Artemis Strategic Bond fund invests 100% into UK corporate bonds, Henderson’s Sterling Strategic Bond fund invests 8.2% into money market instruments, and Investec’s Sterling Bond fund invests 64.1% into non-UK bonds.

Bonds in the Sterling Corporate sector may contain traces of dollar, euro and UK government bonds. Fidelity’s MoneyBuilder Income is 43% invested in non-sterling issues, while M&G Corporate Bond has 7% in gilts.

Always read the label – but don’t always believe that ‘sterling’ necessarily means it was manufactured in the UK.

●Step 4: reduce stress related anxiety by giving up trying to find the perfect active fund manager.

Anyone left dizzy, suffering from headaches and/or premature baldness are advised to skip steps 1-3  and search for cheaper alternatives.

I you’re a higher-rate taxpayer and you have no previous experience of capital gains, get some advice from an index tracker fund manager, such as Vanguard, who will help you to see that putting £10,000 into an actively managed fund via with an Isa wrapper will save just £45 a year in income tax, assuming a 2% dividend, while costing £160 a year in charges, based on the average total expense ratio of UK All Companies funds.

Incurring lower tracker fund charges may provide savings of around £1,300 over a 10 year period. Fully diversified multi-asset tracker funds, including the eight-asset MAP fund offered by Frontier Capital Management, can lower standard deviation to 5-7%, as part of a volatility controlled diet. Chief investment officer’s advice: it does what it says on the tin.

In addition, higher rate on dividends will move from 32.5% to 42.5% of the grossed up income (equivalent to 36.11% of the net dividend) for taxable income above £150,000.

As a result of the changes to become effective from 6 April, private banks and wealth managers have been advising those who will be affected to act now in order to protect their income. Many are taking steps to bring forward earnings to this tax year, or plan their finances in an attempt to lower the impact.

Below are some tips outlined by Which4U that higher earners should consider:

1. Make full use of all your tax allowances Many of us complain about how much tax we pay, but forget to take advantage of tax free breaks. The truth is, many of us could be missing a trick when it comes to tax relief.Always ensure you have used up your allowances by the end of every tax year. A popular tax free savings incentive is your first port of call, in the form of individual savings accounts (Isas), with an annual allowance of £10,200 (or £7,200 for those under 50 until April 6th), as well as tax-free National Savings & Investments products.No income tax is required to be paid for any interest or capital gains earned using Isas, so make sure you shop around to find the best Isa rates, or alternatively if you wish to invest in a stocks and shares Isa, do some research into the market.Transfer investments that provide an income to your spouse, if he or she does not work or has earnings that fall in a lower tax band. This now not only applies to spouses on the basic rate tax but also those paying 40%, if the other spouse currently earns above £150,000 per year.
2. Close your bank account According to advisers at Deloitte, those that have a savings account paying interest on an annual basis that is due to be paid after April, should consider closing the account before the new tax rules kick-in in, allowing the interest payment to be subject to a lower rate of income tax. After, you can simply open a new bank account.
3. Donate to charity in the new tax year After 6 April, high earners making donations using the Gift Aid scheme will qualify for higher tax relief, which means that more money will be given to the charity. However, you should think about the potential impact delaying your regular donations could have on the charity, especially in the current financial climate.
4. Accelerate your income Some employers have chosen to pay employees their salaries early to avoid the higher tax. Consider asking your employer if this is a possibility. This may be easier for those in entrepreneurial or family businesses.You can also make use of any share options you currently hold, as these attract income tax so you will pay the lower rate. Those already getting pension income are able to opt to receive annual payouts as a lump sum before the changeover date in April.
5. Add more to your pension fund in the new tax yearIt has become apparent that pensions are looking more of an unattractive option to higher earners, with tax relief cut to 20% on some contributions.However, if you do fall into this category, you may want to act fast. In the 2010/2011 tax year, those earning more than £150,000 will be eligible to put in at least £20,000 and up to £30,000 with 50% tax relief, before the new restrictions come into play in 2011.Advisers at Deloitte have suggested that people earning between £100,000 and £113,000 – who will effectively be paying 60% tax from April as a result of their personal allowance also being eroded – should also add to their pensions.
6. Consider venture capital trusts (VCTs) Although these start-up investment schemes can be quite risky, they are being labelled as an alternative to a pension fund for higher earners because contributions attract 30% tax on the way in.
7. Move your assets into an offshore bondOffshore bonds are investment bonds that are operated by life insurance companies and also have some life insurance attached to them. This enables you to avoid paying any tax until you encash the bond. The idea is that by the time you come to encash the bond, you may be subject to a lower rate of income tax, for example when you’re retired – or if you have become an expat or a non-dom, you may not have to pay any UK tax whatsoever. Many well known financial advisers are using this approach for clients.
8. Change from income investments to Capital Gains Tax In 2008, capital gains tax was lowered to 18%, and investors have since been looking to acquire returns that are taxed as capital gains rather than income. According to advisers, the 50% income tax band has sped-up this switch. Over the past year, demand for products such as zero dividend preference shares has significantly risen, as well as funds that work on a total return basis instead of generating income, such as absolute return funds.
9. Consider leaving the countryThis may seem like a rather extreme measure – but advisers at Cazenove and Schroders Private Bank have said that many of their clients are considering this option in response to the substantial tax demands.

   By Sam Gooch

This usually means transferring cash ISAs to get a better deal, but what are the rules around moving your cash between ISAs?

Which4U is aware that many savers are either baffled by the rules around ISAs, or not given useful information from providers.

Many accounts offer introductory bonus rates that only last for a specified period, after which the rate falls significantly, sometimes without savers even being aware.

This means that many savers are earning pittance on their funds, which defeats the object of opening an ISA in the first place.

Out of the £163billion currently invested in cash ISAs in the UK, the average rate paid is just 0.4%, down from 4.36% last year.

Some accounts, including the Alliance & Leicester Branch ISA, Abbey Easy ISA, Barclays Cash ISA and Halifax ISA Saver pay just 0.10%, the equivalent to earning a measly £1 per year for every £1,000 in the account.

However, do a bit of searching for the best ISA rate and you could earn around 3% – that’s 30 times more interest than the account mentioned above.

The Abbey Direct ISA pays 3% on balances of £9,000 or more, allowing you to transfer previous years ISAs. The account is based on a 12 month period, offering no withdrawal restrictions.

Alternatively you could go for the ING Direct Cash ISA, offering 2.5% on all balances, although you cannot transfer an existing ISA across to this account, so would be better for someone that is new to ISAs.

The Natwest e-ISA also allows savers to deposit between £1 and £10,000 to qualify for 2.0% AER, or 2.25% for balances between £10,000 and £30,000. anything over £30,000 pays 2.50%. This account comes with no withdrawal Penalties and allows customers to transfer existing ISA balances across.

Not all top-paying accounts allow transfers, it is up to each bank or building society to decide.

There are strict rules around transfers, so always make sure you understand them before attempting to switch ISA providers. First of all, the most important rule of all is to never attempt to move the funds over yourself. This is ALWAYS done by the bank/building society you wish to transfer to and attempting to withdraw your funds in order to move them across to the new account would result in you being unable to deposit your full balance back into an ISA, with you being limited to the annual amount and effectively ruining the previous years spent building up your pot.

Luckily, the ISA transfer process has improved since over the few years or so, when some savers were made to wait months for their money to be moved.

New guidelines have been implemented which will shorten the switching process from the 30 days permitted by HM Revenue & Customs to 23 business days for cash ISAs.

Several banking institutions have set up a new system to allow cash ISA funds to be moved between them electronically, which could reduce transfer times to just 12 days. These include Lloyds Banking Group, Abbey and RBS NatWest.

These are the basic ISA rules:

• You can transfer your savings from one cash ISA provider to another, provided that your chosen account accepts transfers.

• If you wish to transfer a cash ISA opened in the current tax year (April 2009 to April 2010), you can do so but if you transfer the whole balance to the new provider.

• With cash ISAs opened on or before April 5, 2009, you can transfer some of or all to the new provider.

• The current ISA allowance for those aged 50 and above is £10,200, and £7,200 for everyone else. In the new tax year (April 6th 2010) all savers will be eligible to save up to £10,200 in cash ISAs and stocks and shares ISAs.

• You can use your entire annual ISA allowance to invest in stocks and shares ISAs, but you may only invest half into a cash ISA.