How Can A Cash ISA Help Me?
There are a number of situations when holding a cash reserve is prudent. Keeping your cash holdings in an ISA structure gives you flexibility, tax-free interest earnings, and the option to transfer to higher-earning ISA options at a later date.
There are lots of ways that a Cash ISA can be a very useful financial tool to help you save, even if the interest rates aren’t quite as high as you might like.
We’ve broken down four ways that a Cash ISA can help you.
Cash ISAs can help you…
- build good habits
The world of savings and ISAs can be a bit overwhelming to understand as a beginner on their first foray into finance. Cash ISA is your ISA 101 which can be used as a good foundation for further saving.
Once you have opened a Cash ISA and learned how ISAs work, you are able to open a different form of ISA and transfer your funds. This means you can get your money in there and be earning interest and gaining experience which can set you up for further lucrative saving.
- save while still having access to your cash
Other forms of ISAs, such as Lifetime ISAs or Stocks and Shares ISAs lock your money away for a fixed amount of time or until a particular life event (like buying a house). This is restricting what you can use your money for. It’s useful if that is what you want your account to do, but if you want access to your Cash while still having that ISA tax-free wrapper, a Flexible Cash ISA is the way to go.
- save from day one
Once you hit the age of 16, you can put your money into a Cash ISA. If you are young and have come into some money, for example through inheritance or you have been saving all your pennies from your weekend job, then putting these funds into an ISA is the best way to maximise your finances for your future.
You have to be 18 to open any other kind of ISA, so if you are 16/17, a Cash ISA is the way to go. Once you turn 18, you are able to transfer your funds into a Stocks and Shares ISA if you want to capitalise on their more attractive interest rates. This can be a great way to squirrel away some money to support yourself through university, college or the first few years of working life.
Before you turn 16, your parents are able to put money away for you in a Junior ISA (JISA), but they have to be the ones to open the account. We have a blog on JISAs on our site, which is useful if you want more information.
- save as a couple
It’s not possible to open a joint ISA account. For couples wanting to maximise on each of your tax allowance, you should spread your investment over different types of ISA accounts.
You could decide that one spouse should put all of their allowance into a Cash ISA, while the other might put theirs into a Fixed Term ISA, a Lifetime ISA or an Investment ISA.
This way, you can maximise on the returns you get on your tax allowance through putting some of your joint money into Lifetime or Stocks and Shares ISA which have higher interest rates, whilst maintaining access to some of your money in the Cash ISA.