Cash ISAs Explained
A cash ISA provides a tax wrapper around your savings, protecting your interest payments from the taxation that you would be likely to see on interest accrued with a conventional savings account.
Cash ISAs explained in simple terms
A cash Individual Savings Account (ISA) is simply a savings account opened with a bank, building society or other provider, where interest is exempt from taxation.
You must be a minimum of sixteen years old and a resident of the UK in order to place your savings into a tax ISA. There is also a limit to the amount you ca place into such an account for each tax year. For the 2012/13 tax year you are able to put up to £5640 into a cash ISA.
Cash ISAs are a less risky alternative to investment ISAs (also known as stocks and shares ISAs), where returns may fall or rise depending on investment success.
Because you can only invest a limited amount in a cash ISA so you may want to use it in conjunction with a regular savings account.
Types of cash ISAs explained
There are three main types of cash ISAs available, these include:
- Cash ISAs with instant access- allowing you to pay in or withdraw money at any time. May limit the amount you can withdraw and will often have a variable interest rates.
- Cash ISAs with fixed rates- This type of ISA will require you to commit your savings for a fixed period of time, but you are also likely to benefit from higher interest rates the longer you can keep your savings invested. Usually you will have to make a lump sum deposit to qualify for this type of cash ISA.
- Cash ISAs for regular savings- This type of ISA also usually provides a fixed rate of interest, but you will normally need to make regular savings deposits into the account.
When you switch between ISAs, perhaps in pursuit of a better rate of interest, make sure you transfer between the two accounts, rather than closing one and opening another, otherwise your money will lose its tax free status. It is a good idea to shop around and compare the market to get the best deal for your savings, you should also consider reviewing your savings ventures at regular intervals.
To find out the latest interest rates available on the market visit our cash ISA page.
To discuss the best rates and saving accounts for your money and for expert ISA advice, speak to a member of our partner's independent savings advice team and receive a fee initial consultation.
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