With the ISA deadline of 5th April 2012 on the horizon, time is running out if you want to maximise this valuable tax benefit. The market has recently come alive, so to help you make the most of the latest offers available, Oliver Roylance-Smith, head of investment and savings, takes you through his current top picks.

What are your options?

The main options for you to consider are capital protection versus an investment plan, and whether you are looking for either income or growth. Capital protection is normally available through cash ISAs with an annual allowance of £5,340 per individual whilst the investment ISA allowance is £10,680. Remember, even if you put the maximum amount into a cash ISA, you are still able to put up to £5,340 into an investment ISA.

INCOME

Income is certainly top of the list for many at this time of year, as the ability to generate a tax-free income from your money is an opportunity too good to miss, making the ISA the perfect option to consider first.

Cash ISAs: top picks for income

Capital protection is of prime concern here, along with a competitive return from your savings. The cash ISA space offers competitive fixed rates across a range of terms with the medium to longer term rates offering the most attractive options for income seekers.

NatWest is offering up to 4.2% over three years provided you transfer in an existing cash ISA and the monthly option allows interest to be paid out into a NatWest current account or savings account. In the longer term, Halifax’s 5 year Fixed Rate Cash ISA is currently offering a market leading 4.5% with a minimum deposit of £500 and transfers are permitted. Interest is paid annually.

Recently, the ability to supplement your fixed rate with the potential for higher returns has been growing in popularity and with continued low interest rate pressures looking to remain well into 2015, alternative options are becoming more and more competitive. The top pick for cash ISA income alternatives is the Fair Investment Income Deposit Plan. Capital protection is provided by the Royal Bank of Scotland and the plan will pay an annual income of 7.25% for each year the FTSE remains between 4,500 and 7,250.

Click here to compare our Cash ISA selection »

Investment ISAs: top picks for income

For those prepared to put their capital at risk in order to have the potential to achieve higher returns, the investment ISA is the perfect partner and with an annual allowance of £10,680, increasing to £11,280 in the 2012/13 tax year, this is a sizeable opportunity.

The stand-out income investment plan is the Bonus Income Plan from Investec Bank which offers a fixed return of 7% with the potential for an additional 0.5% for each year the FTSE 100 finishes higher than its starting value. The plan has a monthly income option and also includes conditional capital protection, which means that your initial capital will be returned in full unless the FTSE falls by more than 50% during the investment term of 5 years. ISA transfers are permitted and you are also able to invest the full ISA allowance for both the current and the next tax year.

The income investment fund top pick is the Monthly Income Plus fund from Invesco Perpetual. The current distribution yield is 7.19%* and income is paid monthly. The fund is AAA rated by OBSR and is available via the Fair Investment Fund Supermarket at 0% initial charge. You can also take advantage of your ISA allowance for both the current and next tax year as well as transfer any existing holdings. Please visit our website for further income fund options from our Select Range as well as our Popular Fund choices.

Click here to compare more Income Investment ISA options »

GROWTH

If the ability to take an income is less of a consideration than receiving a high level of growth, then the following top picks should be considered.

Cash ISAs: top picks for growth

The fixed rate deals are again the main source of the most competitive deals available. The short term pick is the RBS 1 Year Fixed Rate Cash ISA offering 3.35% provided you transfer an existing Cash ISA. Halifax has a 2 year Fixed Rate Cash ISA paying 3.7% with a minimum of £500 and transfers permitted. Cheshire Building Society is also offering 3.70% AER over 18 months however this is for new money only as transfers are not permitted.

In the medium term NatWest is offering up to 4.2% over 3 years provided you transfer in an existing Cash ISA whilst the Cash ISA alternative top pick is the 3 Year Deposit Plan from Investec Bank which offers a fixed return of 18% provided the FTSE finishes higher than its starting value (equating to just over 5.6% per year). This plan will accept Cash ISA transfers and you are able to take advantage of your full Cash ISA allowance for both the current tax year as well as 2012/13 tax year.

In the longer term, Halifax’s 5 Year Fixed Rate Cash ISA remains market leading at 4.5% with interest paid annually and can be added to the capital. The Cash ISA alternative top pick is Investec’s Kick Out Deposit Plan which has the ability to mature early provided the FTSE finishes higher than its starting value. If this does occur you will receive your initial capital plus a return of 6.25% for each year the plan has been in place.

Click here to compare our Cash ISA selection »

Investment ISAs: top picks for growth

The investment plan top pick for growth is the Enhanced Kick Out from Investec Bank. If the value of the FTSE 100 at the end of the year is higher than its starting value (subject to averaging), you will receive your initial capital plus a market leading 13% return for each year the investment has been in place. This plan also includes conditional capital protection which means that your initial capital will be returned in full unless the FTSE falls by more than 50% during the five year investment term.

The Fair Investment Fund Supermarket has over 1,500 funds from more than 90 investment managers, so finding our investment fund top picks amongst the vast choice available within the growth sector is a tough challenge.

Our top pick in the UK Equity sector is M&G’s Recovery fund which is AAA rated by Morningstar, S&P and OBSR and has had top quartile cumulative performance over the last one, three and five years**. Our global equity top pick is Neptune’s Global Equity fund which has outperformed its benchmark by over 100% since launch and is also AAA rated by OBSR**. For those looking for opportunities in less developed markets our Emerging Market fund top pick is Aberdeen’s Emerging Market fund which is top quartile over 1, 3 and 5 years and is AAA rated by OBSR*.

All of the funds detailed above have a 0% initial charge when invested through the Fair Investment Fund Supermarket and you can transfer your existing holdings at no charge. We also provide you with our Popular Fund choices and our Select Range of funds across a number of other sectors so visit our website for more details.

Click here to compare more Growth Investment ISA options »

Important Reminder – why do an ISA?

The main reason for using an ISA concerns the tax advantages since no tax is payable on the income you receive or on any capital gains that you make and there is no need to declare any ISA income or capital gains on your tax return. Cash ISAs and Investment ISAs therefore provide tax efficient income and growth, the value and benefit of which is compounded over time.

For further help and guidancein the run up to the end of the tax year, please see our Top 10 Tips for ISA season and our ISA deadline checklist.

* data correct as at 31/01/2012
** data correct as at 31/12/2011

Go to our ISA section to compare a wide range of options for your ISA allowance »

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. Tax treatment depends on your individual circumstances and may change.

Some structured investment plans are not capital protected and there may be the risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated, in which case you may not be entitled to compensation from the Financial Services Compensation Scheme (FSCS). In addition, you may not get back the full amount invested if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

© Fair Investment Company Limited