Cash ISAs

ISAs are basically a tax-free wrapper for savings and investment products, which enable you to put away a set amount of money in any tax year to April. With other savings products, basic rate tax payers are looking at 20% tax, while high rate payers are looking at 40%. On 1st July 2014, the government changed ISAs to New ISAs (NISAs) to take into account of subscription limits and flexibility of how you can invest your money between cash, stocks and shares or a combination of both. New ISA annual allowance for the tax year 2015/2016 was £15,240. You will be able to split the amount you pay into an ISA between a Cash NISA and a Stocks and Shares NISA as you choose – up to the new overall annual NISA limit.

There are two types of ISA, these are: Cash ISA: These offer a safe way of saving money in the short-term and are usually taken through banks and building societies. You only need to be 16 years old to open one of these. Cash ISA savers can also transfer money saved in their Cash ISA to a Stocks and Shares ISA. Stocks and Shares ISA: These may involve investment funds; unit trusts, shares, bonds, as well as life insurance policies, and are usually taken through an investment company. As with any investment, there is a risk that you may not get all your money back.

Take advantage of the vast benefits of a tax-free savings account by making sure that you get one with the best cash ISA rates available.

The main benefit of a cash ISA is that you will earn tax-free interest on your savings. If your savings are deposited in a standard savings account, at least 20% of the interest you earn goes to the tax man. For those in higher tax brackets this goes up to 40%, and up to 45% for those in the highest bracket.

Putting as much of your savings as you can into a cash ISA is a often a good idea, protecting a portion of your money from tax.

A Stocks & Shares ISA is used to invest in a wide range of stocks, shares and investment funds. The ISA wrapper allows any returns to be paid tax efficiently. Stocks & Shares ISAs are designed to be long term investments, as your money can either increase or decrease, rather than simply increasing steadily due to interest as in a cash ISA. The potential gain is greater than with a cash ISA but there is always the risk of losing some of your invested money.

TIP: Remember that you can now invest in up to two ISAs each tax year.

TIP: Try not to withdraw money from your ISA. Once you have invested the limit, if you make a withdrawal, you cannot top it up again.

TIP: If you are switching ISAs do not just withdraw the cash – you will lose your tax-free element! Make sure the new bank or building society can set up the transfer for you.

TIP: Cash ISAs are safe and are good for short-term savings. Stocks and Shares are more risky and need to be invested for longer periods. Make sure you can live without the cash if you opt for the latter.

TIP: If you’re a taxpayer, try to make use of your annual ISA tax free allowance. The interest rates for cash ISAs are more generous than for many equivalent non-ISA accounts.

TIP: Look out for all the usual dos and don’ts when it comes to interest rates; there may be minimum withdrawals or a minimum on how much you need to deposit.

Please note: The HM Treasury regularly review rules relating to ISAs and they are subject to frequent amendment.