It's important to pick an ISA which suits you

THE football transfer window might have closed but there is no restriction on switching your tax-free savings.

And at a time when interest rates are poor for savers, it is important that we make sure our money is working for us.

It can be difficult to get your head round, especially if you are new to saving.

Many of us spend decades looking at interest rates from the perspective of mortgage repayments before we have any spare cash to put away.

When we do, we just about work out that we are allowed to save a set amount in a cash ISA each year – this year it's £5,640, plus the same sum in a stocks and shares ISA.

Obviously we choose an account with the best rate, but if in time to come that rate falls, we should consider transferring the lump sum elsewhere.

Danny Cox, of Bristol-based financial advisers Hargeaves Lansdown explains that while the taxman restricts the amount thatcan be saved or invested into ISA each year he does not put a limit on the total that can be held in ISA.

“If savers and investors are unhappy with their ISA account, they can transfer the value to another provider. Providers may restrict how much can be transferred but this is not an HMRC restriction.

“When a transfer is made from one ISA provider to another, the tax benefits of the ISA are retained and there is no impact on the subscription amount. ISA providers follow strict procedures in this regard which segregate transfers from contributions.

“Savers can transfer their cash ISA to another cash ISA provider, or transfer to a stocks and shares ISA. Stocks and shares ISAs can be transferred to another stocks and shares ISA provider but not to a cash ISA.”

Mr Cox added: “It's important to pick an ISA which suits you. For example, if you would like to keep your ISA money flexible and have access whenever you need it, you should avoid fixed term ISAs or those which only pay the full headline interest rate if you don’t make withdrawals during a year.”

Bear in mind that the cost of living has gone up about 12 per cent in the last four years so we need to ensure that savings rates at least match inflation otherwise we are in effect losing money.

If you are not getting a competitive rate, look as the possibility of transferring to a deal that pays more.

An example is the West Brom WebSave ISA 6 account, which pays 3.18% annual interest on a minimum investment of £1,000. This rate includes a 1.66% bonus which is payable until the end of September, 2013.

The 3.18% rate is the Annual Equivalent Rate (AER) and is slightly higher than the account's quoted 3.16% tax-free rate. This is because the AER reflects the fact that interest is credited to the account on April 5, 2013, meaning interest is then paid on interest until the end of the bonus period.

The maximum you can invest in the account this tax year is the annual cash ISA allowance of £5,640, but you can also move any additional funds held in existing cash ISAs into the account, up to a maximum of £75,000.

You can make withdrawals whenever you want, but you must give 60 days' notice each time or lose 60 days' interest.

This account can only be opened and operated online.

The Coventry 60-Day Notice ISA pays a higher rate of 3.25% tax-free, but it does not accept transfers-in from existing ISAs. That means the maximum you can invest this tax year is £5,640. You can open the account with a minimum investment of £1.

The rate includes a 0.50% bonus paid for the first year the account is open. Again, you must give 60 days' notice if you want to make a withdrawal.

If you need urgent access to your money then, you can make a withdrawal without giving notice, but you will be charged 60 days' interest on the amount withdrawn.

The Coventry account is operated by telephone, but can also be operated in branches, by post or online.

Neither account will suit savers who need regular access to their cash, as you have to give notice before you make a withdrawal.

Remember too that both accounts' rates include a bonus, which means that you may want to move your money once the bonus period ends.

With any account that includes a bonus in the rate, always make a note of when the bonus disappears, as you will need to move your money at that point if the rate is no longer competitive.

If you don't want to keep moving your money, then your best bet may be to go for a 'clean rate' account, with a rate that doesn't include a short-term bonus.

Virgin's offering of 2.85% makes its easy access ISA he best 'clean' rate ISA on the market, both for transfers and new ISA money.

The account permits savers to make unlimited withdrawals without notice and allows transfers-in from other ISAs.

Please note: Any rates or deals mentioned in this article were available at the time of writing.