ISA limit to rise by £600 next tax year

Savers must grab the opportunity to save when the ISA limit increases by £600 in the next tax year, Danny Cox, head of advice at Hargreaves Lansdown said.

From April 2012 the ISA limit will increase in line with the Consumer Prices Index (CPI), rather than the Retail Prices Index (RPI) which it currently uses.

The rate of inflation used to calculate April 2012's new ISA limit is September's CPI, which was announced today as 5.2%.

Today's rise in CPI will boost the ISA limit from April 2012 to £11,280, up from £10,680, the Treasury said.

The full amount can be invested in a stocks and shares ISA, or half (£5,640) in a cash ISA.

"Next year savers should try to maximise their ISA allowances and shelter as much money from tax as possible," Cox said.

"Inflation is going to fall, so this is the largest rise in the ISA allowance we will see for a while."

However, Cox added that generally, the high inflation figures will damage saving.

According to figures from Standard Life, a pension income purchased in 1981 worth £10,000 per year would have the purchasing power of just £3,207 per year today.