Savers with a fixed-rate cash Isa who don't use their full allowance immediately could lose much of their tax-free entitlement or pay steep penalties to keep it.

Complex rules mean many banks and building societies either only allow you to make one deposit or, in the case of government-owned Northern Rock, can close the account at any point to new money without notice (see the Fixed Rate Isa guide).

If you've yet to use your allowance and can't top-up your balance, your only option to pay in more in one tax year is to switch provider, which could land you with a three-figure penalty.

Confusing terms

In particular, NR makes planning your finances a nightmare. It allows multiple deposits but it can close the account to new money if too many people subscribe to that product.

At that point, existing customers only have 30-days to add to their balance. If they miss the window, they cannot save any more in an NR cash Isa for that tax year.

The bank admits it does not notify customers when accounts are pulled.

One saver caught out by Northern Rock's conditions was Audrey Whittaker, from near Edinburgh. She made an initial £500 deposit early in the last tax year into an NR fixed rate Isa.

When she got a bonus in March she decided to pay in a further £3,100 to use up her allowance but the cheque was returned two days later with a note stating the product was closed to new money.

She didn't realise she could transfer the account.

Audrey says: "I feel I have been deprived of my tax-free saving entitlement. How are we supposed to know when each Isa is closed to new money if we're not told?"

NR says it clearly displays its terms in numerous online and print formats.

Check the small print

NR points out that other providers that allow multiple fixed rate Isa deposits may also close their accounts at short notice to new money from existing customers, though none of the major providers we contacted said this is the case with their existing products.

Nevertheless, as it may happen in future, it highlights that you should always check first.

Below is a table showing terms of the major Isa providers.

Fixed rate Isa deposit restrictions
Provider Conditions
Alliance & Leicester One deposit per tax year
Coventry BS One deposit per tax year
Halifax Dependent on product (some one deposit, some multiple)
HSBC One deposit per tax year (must be full £5,100)
Lloyds TSB Dependent on product (some one deposit, some multiple)
Nationwide BS One deposit (you can open another N'wide Isa to maximise allowance)
Northern Rock Multiple deposits up to 30 days after account closed to new money
Santander One deposit per tax year
Barclays, Natwest and Royal Bank of Scotland do not sell fixed rate Isas

Cash Isa limits

Everyone can save up to £5,100 in a cash Isa every financial year (April-April), where the interest is untaxed. In most cases, you can only open one Isa for new money per tax year.

The limit is up from £3,600 during the last tax year, though over 50s saw their ceiling rise to £5,100 last October.

Fixed rate Isas provide some of the most attractive rates of up to 3.75% for three years but your cash is locked away for the term, unless you pay a fee (see the Fixed Rate Isa guide).

Steep transfer penalties

To maintain your allowance, if unable to top-up an existing account, you'll usually have to transfer your account to another provider.

But the cost may outweigh the short-term benefits of saving that cash in an Isa, rather than a taxable savings account, if you transfer before the end of a fixed rate term.

Some providers charge up to a year's interest to move the money early. On a £5,100 balance at a typical 3% rate, that's a £153 fee.

On the same balance and rate, a cash Isa only works out £61 better a year than a taxable account for a higher-rate taxpayer.

However, you'll make a saving year-after-year in an Isa, and if you don't use your allowance each year, you'll lose it forever.

Dan Plant, money analyst, says: "Whether you want to fix your Isa or have easy access, make sure you know the rules.

"If you miss out on using your full allowance each year, you lose it, and that could cost big in the long run."

Further reading/Key links

Top rates: Cash Isas, Isa Transfers, Full Isa guide, Top Taxable Savings