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ISAs give older savers chance to increase tax-free savings

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Anyone aged over 50 will be able to invest more in tax-free ISA savings accounts as of next month.

From 6 October, the ISA allowance is rising from £7,200 to £10,200 for this tax year, while the cash allowance climbs from £3,600 to £5,100, a rise of £1,500.

The new allowances, which were announced in the Budget, will eventually apply to all savers, but those born before 6 April 1960 are being given the chance to take advantage of the new limits six months before everyone else.

Savers who have not opened a cash account this year can use the £10,200 threshold on stocks and shares ISAs.

The new allowances cover those who already have an ISA and those who have yet to open an account.

Under the rules governing ISAs, savers can only invest in one cash account and one stocks and shares account in any given tax year, and this still applies.

As a result, any top-ups using the new allowances must be made with the same savings provider with whom an existing ISA account is held. To move to a different provider will involve requesting an ISA transfer.

Not all banks and building societies are likely to treat the new allowances in the same way. Some will allow savers to top up cash accounts at the same interest rates that applied to the initial sum when the account was opened. Others will insist that savers who wish to add more to their ISA funds must open a new bond at a different rate of interest and with a different maturity date.

The new allowances will apply to savers aged 18 to 49 as from 6 April 2010. Savings will then be capped at £10,200 a year, of which £5,100 can be invested in a cash ISA and the remainder in a stocks and shares ISA. In the absence of a cash ISA, savers can put the full £10,200 into a stocks and shares ISA.

Anyone who is 16 or over at the end of the tax year but aged under 18 will be able to invest up to £5,100 in a cash ISA but cannot invest in a stocks and shares ISA.