A cash Individual Savings Account (ISA) works in much the same way as a normal savings account. The big difference is that you don't have to pay tax on the money you put into it.

This means basic rate tax payers are able to keep all the interest, rather than handing 20% over to the tax man. For higher rate tax payers, this figure is a whopping 40%. In a nutshell, a cash ISA can be a great way to save! Here are five things you should think about when you take one out...

1. ISA limits relate to the tax year
Unfortunately, you're not allowed to save unlimited amounts of money in cash ISAs. Everyone over 16 is given an ISA allowance for each tax year (6th April to 5th April).

To make the most of the tax-free benefits, it usually makes sense to use up as much of your ISA allowance as possible.

2. The current ISA allowance
For the current tax year (6th April 2010 to 5th April 2011) everyone has an ISA allowance of £10,200. This is a rise on last year's allowance, which for most people was £7,200.

However - only £5,100 can be stashed in a cash ISA. any money remaining would need to be put in a shares ISA instead, which follows the ups and downs of the stock market.

If you have money to save and haven't used up your cash ISA allowance, you need to do so before 5th April, or you'll miss out. And remember that in any one tax year, you're only allowed to open one cash ISA.

3. Variable or fixed?
Cash ISAs come in both fixed and variable rate forms, just like normal savings accounts.

The majority of cash ISAs are variable rate. On the plus side, this means they tend to be flexible and allow hassle-free withdrawals.

On the other hand, you need to keep a close eye on the Annual Percentage Rate (APR) to make sure it doesn't suddenly drop without you realising it.

4. ISA transfers
In theory, you're allowed to transfer cash from previous years' ISAs into your current one - allowing you to take advantage of the best possible interest rate.

However, some high-rate cash ISAs don't allow you to make transfers into them. So, if you're looking for a competitive home for your old ISA cash, double-check that your new pick can accommodate this.

5. Withdrawal charges
As I say, variable rate cash ISAs are generally more flexible than their fixed-rate counterparts. However, several still have nasty withdrawal restrictions and other loopholes.

For example, some will impose financial penalties if you make more than a certain number of withdrawals during the year. If you think you might need urgent access to you cash, you'll need to choose an ISA that has no withdrawal penalties and no lengthy notice period.

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