What is a Cash ISA?
A Cash ISA is a type of tax free savings account.
You can contribute up to £20,000 into a Cash ISA per tax year, and all the interest you earn on your savings is 100% free from tax.
Savings outside of an ISA are subject to income tax on the interest you earn, so this is where the value of an ISA comes in.
What are the best Cash ISA Rates?
You can choose between a fixed or variable interest rate with your Cash ISA.
Here are the key features of each type of interest rate so you can see which one suits you best:
Fixed Rate Cash ISA
- Fixed terms range from 1 to 5 years – you can’t make withdrawals in this time without being charged or losing your interest
- Generally, the longer fixed term you commit to, the better ISA interest rates you receive
- The interest rate you are quoted is guaranteed for the duration of your term
Variable Rate Junior Cash ISA
- Generally, variable rate Cash ISAs have lower interest rates than fixed term Cash ISAs
- You can usually transfer away or make withdrawals free of charge without being charged or losing your interest
- The interest rate you get can be changed by your Cash ISA provider and isn’t guaranteed
Depending on how comfortable you are with committing to a fixed term with your ISA, the longer fixed term you take out, the better interest rate you receive.
You can compare Cash ISA interest rates and terms above, but you should also think about:
- What kind of customer service does your Cash ISA provider?
- Can you access your account online?
- How often can you make withdrawals, and will you be charged?
- What is the minimum investment amount?
How do I apply for a Cash ISA?
You can apply for a Cash ISA online once you have settled on an ISA provider and type of account to invest in.
You will need to have the following information on hand to open your account:
- Your National Insurance number
- Your debit card details if you want to make a lump-sum contribution
- Your bank details if you are going to set up a regular Direct Debit contribution
You can also apply for some Cash ISAs over the telephone, or using a postal form and a cheque if you prefer this method.
Cash ISA Eligibility
In order to be eligible to open a Cash ISA you must be:
- At least 16 years old
- A resident of the UK - if you do not live in the UK then you must be either a Crown Servant or the spouse/civil partner of one
Can I transfer an existing Cash ISA to a new one?
If you find a Cash ISA with great interest rates, you can usually transfer your previous year’s Cash ISAs into the new one. Check with your new provider on how to do this, but it usually involves completing a transfer form and posting it to your new ISA provider.
Make sure to check with your previous ISA provider to ensure that you are not charged for transferring out or lose any of your interest, which could happen if you currently invest in a fixed rate ISA.
You can also transfer to and from Stocks and Shares ISAs and Cash ISAs if you wish to change your investment strategy.