5 Factors to Consider
When Choosing a Cash ISA
"Make sure your Cash ISA Provider is giving you a good deal. ISA rates change and so keep an eye on the market to make sure the rate of interest you are getting is competitve. If you are not happy you have the option of transferring to another cash ISA provider although you need to ensure you can do this without being charged without penalty".
James Caldwell, Director
A Cash ISA is a first port of call for anyone who wants to save money without handing a large portion of their interest earnings over to the taxman. The current Cash ISA allowance of £5,640 is per individual (for UK residents) for the 2012/13 tax year and must be utilised by 5th April 2013. However, choosing an account that best meets your needs can be easier said than done. To help you along in the ISA selection process, we have five factors to keep in mind as you compare cash ISA possibilities.
Cash ISA Rate
Your rate determines how much you earn on your account. However, the best rate this year may no longer be competitive in the next. To ensure your savings are working hard you must continue to shop rates to ensure your account is earning as much as possible.
Keep in mind that cash ISA transfers can be done anytime without penalty, as long as your ISA manager allows withdrawals as part of your account terms. Keep your eye on the rate, as you want to be prepared to move your money from one ISA to another to ensure the best earnings on your cash.
Account Flexibility
There are many different types of cash ISAs available, including:
- Easy access accounts
- Regular savings accounts
- Fixed-rate accounts
Each of these account types will vary based on when and how much you can withdraw and how the rate is determined. While you must weigh all the factors when choosing a cash ISA, it is a good idea to find an account with flexible terms that allow you to use your ISA to your greatest advantage.
Liquidity
Some types of cash ISAs do not allow withdrawals during a set term. If you withdraw money before the term is over, you will be penalized for your withdrawal. While these types of cash ISAs typically offer a higher rate of interest, that rate is not beneficial if you need to access the funds before the term is over. If you need to have your money readily available, liquidity of your cash ISA becomes a major concern in choosing the best account for your needs.
Account Bonuses
Some cash ISAs offer bonus rates for a limited time to lure in new cash ISA customers. These bonuses might be quite beneficial, particularly if the rate is good for six months or more. However, ISA managers hedge these rates on the fact that customers won't remember to transfer funds when the bonus rate drops to sometimes half of the original rate. If you opt for a bonus rate, be prepared to shop around once again when the bonus time period is over.
ISA Manager
Choosing an ISA manager may be as easy as heading to your current bank or building society. When choosing an ISA manager, look for one that has been approved by HM Revenue and Customs. It is also important to look into the ISA manager's performance to ensure you receive satisfactory service and a decent rate of return on your money.
Choosing a cash ISA is much easier when you have a few specific factors to consider. With this information firmly in hand, you will be better prepared to find the cash ISA that best meets your financial needs.
Important Risk Information:
This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.
Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.