Try using an online ‘roboadviser’

Faith says:

Individual savings accounts (ISAs) are brilliant because they help you to hang on to more of your own money. Every tax year, which runs from April 6 one year to April 5 the next, you can stash away up to £20,000 in these tax-free accounts. Think of

ISAs like a biscuit tin – once you put savings or investments inside an ISA, the taxman can’t touch them.

If you have chunky savings, ISAs are more relevant than ever before. Normally, basic rate taxpayers can earn up to £1,000 a year in interest tax-free, thanks to the Personal Savings Allowance, while even higher-rate taxpayers can earn up to £500 interest without paying tax.

When interest rates were super-low, few people breached the Personal Savings Allowance. But since interest rates have shot up, large balances are more likely to earn interest over the allowance, and face tax on the extra. More than 2.7 million people are expected to pay tax on their savings this year, up by a million in a single year, according to a freedom of information request by A.J. Bell to HM Revenue & Customs. So if you want to avoid paying tax on your interest, move your savings to a cash ISA.

However, if you have money that you can lock away for at least five years, you can potentially earn higher returns if you are willing to take higher risks by investing in the stock market. The drawback is the risk of getting back less than you put in, if you have to sell after prices drop.

Investing within a stocks and shares ISA means you won’t be taxed on any growth or dividends from your investments, which is particularly important now the government is cutting tax-free dividend and capital gains tax (CGT) allowances again. The annual dividend allowance is being slashed from £1,000 to £500 this month, while the CGT allowance is being cut from £6,000 down to £3,000.

If you don’t want the hassle of choosing your own investments, try starting with one of the online ‘roboadvisers’. They make life easier by offering a small range of portfolios, from cautious to adventurous. You can open accounts with the likes of Wealthify or Moneybox with as little as £1, while Nutmeg requires £500. For a lower cost one-stop-shop approach, consider Vanguard’s LifeStrategy funds.

With the new tax year starting on April 6, how can I make the most of my ISA allowance?

Maria Beal, Derbyshire