What is a Cash ISA?
A Cash ISA is a way for you to save a set allowance per year in a useful tax-free wrapper. While you can only have one of each kind of ISA per year, you can split your allowance between the three kinds of ISA: Cash, Stocks and Shares and Innovative Finance.
Why have a Cash ISA?
There are many benefits to owning a Cash ISA. We’ve listed a few below:
There’s no income tax: this is perhaps the most obvious advantage. ISAs are tax-free meaning you can save on top of the Personal Savings Allowance
Flexible Access to your money: unless you have fixed rate account which tend to be more strict about withdrawals, you should be able to access your money quickly and easily
Ability to transfer: ISA providers have to let you transfer, although they could charge a fee for doing so. As long as the account you’re planning to move to accepts transfers, then you can keep on top of your savings goals by making sure your money is always in an account that’s working hard for you
How Much Will I Save with a Cash ISA?
Whatever your savings goals and whatever tax bracket you fall in to, you can pay 0% on any of the money held within the Cash ISA wrapper.
This sounds good but does it actually mean?
Simply: if you are a standard 20% tax-payer then you would usually pay 20% tax on your savings about the personal savings allowance; if you’re a higher rate taxpayer then you can expect to pay 40%.
By using your cash ISA allowance can therefore save you money by allowing you to keep 100% of any interest you earn.
What you save does depend on your individual circumstances and may be subject to change in the future.
Can I Transfer my Old ISA?
Usually, but It does depends on your circumstances. For example, if you have some money saved as a lump sum from a previous tax year, then you'll normally be permitted to transfer this from one cash ISA to another, or to a stocks and shares ISA. This transfer shouldn't affect your ISA investment allowance for the current tax year.
What Cash ISA Should I Choose?
Choosing between a fixed rate ISA and an Instant Access ISA can be tough.
An instant access cash ISA might be the right choice for you if:
- You would like a good rate of interest, plus the ability to get hold of your money quickly if necessary
- You need to take advantage of your annual tax-free savings allowance but only have a small amount to deposit - instant access ISAs can usually be opened from as little as £1
- You want to be paid regular interest as instant access ISAs usually offer monthly or quarterly interest
A fixed-rate cash ISA might be right for you if:
- You are happy to put your money aside for a set period of time - this usually allows you to accrue a higher rate of interest than you might get with an instant access cash ISA
- You want to take advantage of your tax-free savings allowance and have a lump sum to deposit - many fixed-rate cash ISAs require an initial deposit of around £1000
You can use our services and tables to help you choose the right option for you.
