Cash ISAs Explained
A cash ISA (Individual Savings Account) is a savings account which allows interest to be paid tax-free. The government sets a limit on how much can be invested in a cash ISA each tax year. On 1st July 2014, the government announced that all ISAs became New ISAs (NISAs). The main change was that an individual could choose to invest all the allowance in Cash, Stocks and Shares or any combination of the two. Under the NISA rules, you can also transfer previous years’ ISA savings freely between stocks and shares and cash if you wish.
Finding The Best Cash ISA For You
Here at MoneyExpert we're committed to finding the best deals for you personally. Whatever is most important to you, be it interest rates, accessibility, security or anything else, we'll help you find the best cash ISA for you.
Tax Free Saving With Cash ISA Accounts
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.
There is no question that putting as much of your savings as you can into a cash ISA is a good idea, protecting a portion of your money from tax.
Taking Advantage of the Best Cash ISA Rates
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 huge variety of cash ISAs available mean that comparing different cash ISA rates with Money Expert is essential to make sure that you get the best deal. Whether you would prefer the potential gain of a variable rate or the security of a fixed rate ISA, we can help.
Your 2015/2016 Cash ISA Allowance Explained
Each tax year, you are allowed to deposit a certain amount of money in ISAs. For the tax year 2015-16, the ISA allowance from 6th April 2015 was set at £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.
How does a Stocks & Shares ISA work
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.
At MoneyExpert we'll compare both cash ISAs and stocks and shares ISAs for you, so whichever option appeals to you best, head over to the appropriate section of our site and you'll be clearly instructed on what to do next.
Individual Savings Account (ISA)
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.
From 1st November 2011, the Government launched Junior ISAs for children under 18. To be eligible, the child must be a UK resident and not have a Child Trust Fund (CTF). For the tax year 2015/2016, the ISA allowance was set at £4,080. There are two types of junior ISA: a junior cash ISA, where the interest is not taxed, and a junior stocks and shares (investment) ISA, where the returns are mostly tax-free. Funds in a Junior ISA will be locked-in until age 18 and roll over into an adult ISA on maturity, meaning that the accounts will help to foster a long-term savings habit among young people. 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. (Life insurance used to be a component in its own right, but became part of the stocks and shares component in April 2005). The new rules could also affect those of you with existing, old style ISAs or other tax free savings wrappers. If you have an old style Mini Cash ISA, TESSA only ISA or have cash components of a MAXI ISA, your account will have automatically switched to a Cash ISA. Also, old style Mini Stocks and Shares ISAs and the stocks and shares components of MAXI ISAs will have automatically become Stocks and Shares ISAs. Finally, if you have a Personal Equity Plan (PEP) it will have automatically become a Stocks and Shares ISA.
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: 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.
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.
Please remember that the value of an investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest. Although there is no fixed term, you should consider an ISA to be medium to long term, ideally five years or more. The tax efficiency of ISAs is based on current rules. The current tax situation may not be maintained. The benefit of the tax treatment depends on individual circumstances
Other Savings products Which May Suit Your Needs:
A standard savings account is the same as an ISA except your interest will be subject to taxation. As such it is only ever worth saving what is left after your ISA allowance has been used up into one of these accounts.
The best savings account rates will rarely, if ever be better than the best cash ISA rates.
Fixed Rate Bonds
A fixed rate bond is one where, as the name suggests, the interest rate is set at a fixed level and stays at that rate until the bond's maturity. This comes with added security, avoiding the possibility of decreasing interest rates but also comes with a risk of losing value due to inflation.
Fixed Rate ISAs
As with a fixed rate bond, a fixed rate ISA is simply an ISA with a fixed interest rate. Many prefer the security of a fixed rate, while others prefer the potential for gain associated with a variable rate. Whichever your preference, we'll make sure that you find the best cash ISA rates possible.
A Junior ISA (JISA) is an ISA for anyone under the age of 18. It functions in the same way as a standard ISA, cash or otherwise. A child can only have one cash ISA and one stocks and shares ISA at any one time and the junior cash ISA limit is lower, at £4,080.
Between the ages of 16-18, a child may open their own ISA, below this age this must be done by someone with parental responsibility.
Frequently Asked Questions
This will depend on the account you choose, but is easy to find out, and by browsing accounts using our savings account comparison service you can be sure that you’ll get the best annual interest rates available.
Savings Accounts Guides
Whatever you're saving up for, you want to make sure that you've got your money stored away in the right place. Read through our guides to find out everything you need to know about savings accounts and ISAs.
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