Your ISA allowance: Use it or lose it!

picggy bankSavings rates have been painfully poor for four long years, since the Bank of England slashed its Base Rate to a record low of 0.5%.

And they have got even worse since the Government launched its Funding for Lending Scheme last August, offering such cheap funds to banks and building societies that they no longer have to work hard to attract retail deposits. %VIRTUAL-SkimlinksPromo%Rates are so bad for savers that many accounts don't even beat inflation, meaning your money actually loses value in real terms.

So you might assume that this year's ISA season would be going with less of a swing and more of a simper, but you'd be wrong. In fact, savers are still keen to get their hard-earned cash into an ISA before the deadline.

Download this free guide on where to invest your ISA in 2013 here.

Only one a year
We each get an annual ISA allowance of up £11,280 for this tax year, which can either all be invested in a Stocks and Shares ISA, or up to £5,640 in a Cash ISA, and the rest in Stocks and Shares.

You can't carry this allowance over into next year, so if you don't open and fund an ISA by the end of deadline day on 5th April, your allowance is gone for good.

Of course, the next day - 6th April - is a brand new tax year and we all get a new ISA allowance (£11,520) for the 13/14 tax year, up to £5,760 of which can be in cash.

Because the end of one tax year marks the beginning of another, and because rates are so low, you may assume that it is no particular loss if you don't invest or save your annual ISA allowance this year.

After all, the best buy cash ISA rate is only 2.5%, and if you invested the full £5,640 you would get a return over the year of about £142 on your money. Basic rate taxpayers would have therefore saved £33 over the year compared to having their money in a standard, non-ISA savings account. Hardly sets the world on fire does it?

But there is still one very good reason to use your allowance if you have the spare cash.

Tax-free forever
As long as you fund your ISA by the end of the tax year it remains tax-free, forever (unless a future Government changes the rules). What this means is that you can build up a sizeable tax-free savings pot, and the whole lot remains tax-free, not just that specific year's allowance.

This is important because while interest rates are currently low, they won't stay low forever, and when they rise, you will be able to enjoy tax-free savings interest on your entire ISA pot, year after year. If you save your money outside of an ISA, you will be taxed on it, year after year.

Nicer with an ISA
Indeed low rates have failed to put off savvy savers who are rushing to make their most of their tax free allowance while they can.

According to National Savings & Investments 24% of Brits will take advantage of their full ISA allowance this year, while 18% will at least use some it.

And only 9% are put off by poor interest rates and returns, compared to 30% in 2010.
Michael Ossei, personal finance expert at uSwitch.com, says: "Savers are having to make do with the lowest returns in years and they are obviously not happy about it. Yet despite this, they're flocking to cash ISAs in their droves with a 26% increase in the number of savers this year compared to last."

John Prout, National Savings & Investment's retail customer director, adds: "ISAs are usually the first port of call for people looking to save and it's encouraging that almost half of us are utilising the tax-free shelter that ISAs provide. With the end of the financial year fast approaching, now is an important time for everyone to review their savings."

So if you want to make the most of your ISA allowance, where do you start?

The basics
Stocks and Shares ISAs are more complicated than cash versions and it's important to remember that they are investments, so your return is not guaranteed. If your ISA drops in value you could actually lose your money, however of course there is also the potential to make a decent return.

You may want to consider taking independent financial advice if you are contemplating an investment ISA.

With a Cash ISA your money isn't at risk, but the returns are limited. And in the current climate they are particularly poor. Instant access ISAs work like a standard savings account, where you get paid a rate of interest and you can withdraw money as and when you want. At the moment the best buy rate is 2.5% from Cheshire Building Society, but you need a minimum balance of £1,000 to bag this deal.

If you want to benefit from a higher rate you could choose a fixed ISA, where your money is locked in for a set period. For example you can achieve tax-free savings of 3% with Halifax's three-year fixed rate ISA.

As you can see, even the very best rates are not particularly exciting, but remember, you only get one ISA allowance a year, and if you don't use it, you will lose it.

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10 consumer rights you should know
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Your ISA allowance: Use it or lose it!

The law states that any goods you buy from a UK retailer should be of satisfactory quality, as described, fit for purpose and last a reasonable amount of time.

This applies even if you buy items in a sale or with a discount voucher. You may have to insist on these rights being respected, though.

Useful phrases to use when you want to show you mean business include, "according to the Sale of Goods Act 1979" and, if it's a service, "according to the Supply of Goods and Services Act 1982".

Some shops will allow you to exchange goods without a receipt, but they can refuse to should they wish.

If the goods are faulty, however, another proof of purchase such as a bank statement should work just as well.

If you attempt to return goods within four weeks of the purchase, your chances of getting a full refund are much higher as you can argue that you have not "accepted" them.

After this point, you can only really expect an exchange, repair or part-refund.

The updated Consumer Credit Act states that card companies are jointly and severally liable for credit card purchases of between £100 and £60,260 (whether or not you paid just a deposit or the whole amount on your card).

Anyone spending between these amounts on their credit card is therefore protected if the retailer or service provider goes bust, their online shopping never arrives or the items in question are faulty or not as described.

Start by writing to the agency asking it to either remove or change the entry that you think is wrong. It will investigate the matter and find out whether you have been the victim of ID theft or a bank's mistake.

Within 28 days from receipt of your letter the agency should tell you how the bank has responded. If the bank agrees to change the entry, they will authorise the agency to update their records. They should also send updates to any other credit reference agencies they use.

You can also contact your lender directly to query a mistake. If the lender agrees to the discrepancy, ask them to confirm this in writing on their letterhead and send a copy to the agency, asking them to update your file.

The FOS settles disputes between financial companies such as banks and consumers.

If a financial organisation rejects a complaint you make about its services, you can therefore escalate that complaint to the FOS - as long as you have given the company in question at least eight weeks to respond.

The FOS will then investigate the case, and could force the company to offer you compensation should it see fit.

Bailiffs are allowed to take some of your belongings to sell on to cover certain debts, including unpaid Council Tax and parking fines.

They can, for example, take so-called luxury items such as TVs or games consoles. However, they cannot take essentials such as fridges or clothes.

What's more, they can only generally enter your home to take your stuff if you leave a door or window open or invite them in.

You are therefore within your rights to refuse them access and to ask for related documents such as proof of their identity. If they try to force their way in, you can also call the police to stop them.

Private sector debt collectors do not have the same powers as bailiffs, whatever they tell you.

They cannot, for example, enter your home and take your possessions in lieu of payment.

In fact, they can only write, phone, or visit your home to talk to you about paying back the debt. As with bailiffs, you can also call the police if you feel physically threatened.

Thanks to the Distance Selling Regulations, you actually have more rights buying online or by phone than on the High Street.

You can, for example, send most goods back within a week, for a full refund (including outward delivery costs), even if there's no fault.

You will usually need to pay for the return delivery, though. The seller must then refund you within 30 days.

We enter into contracts all the time, whether it be to join a gym, switch energy supplier or take out a loan.

In most cases, once you've signed a contract, you are legally bound by it. In some situations, however, you have the right to cancel it within a certain timeframe.

Credit agreements, for example, can be cancelled within 14 days. And online retailers must tell you about your cancellation rights for any contract made up to stand up legally.

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