What is a Cash ISA?
An ISA does exactly what it says on the wrapper – in fact, it is the wrapper. ISA stands for “individual savings account”, designed to help you maximise your savings by keeping your money in a “tax-free wrapper”.
A Cash ISA is perhaps simplest to understand because it’s basically a cash savings account – similar to a bank savings account you might have alongside your current account.
There are lots of different kinds of ISAs for various purposes, such as Lifetime ISAs designed to maximise long-term savings or Junior ISAs for children.
The advantage to saving your cash in an ISA account is that the interest you earn won’t be taxed.
This means that the interest you gain on your savings will not be taxed. These are limited, as there is a ceiling on what a saver can put in an ISA each year.
How much can I save in a Cash ISA each year?
Every UK taxpayer has an annual “ISA allowance”: a cap on how much money they can put into one or more ISA accounts each year.
The maximum allowance for this current tax year 2019-2020 is £20,000 per person.
You can choose whether you put all of that £20,000 into a Cash ISA account or spread it across different types of ISA accounts.
Some key facts:
- You can only open one Cash ISA each year
- There are lots of different Cash ISAs on offer from banks, eg. instant access, fixed-rate deals and regular savers
- Your ISAs will either be Flexible or Non-flexible You can choose either a Flexible or Non-Flexible Cash ISA
- Flexible accounts allow you to take your money out of the ISA account and put it back in within the same tax year. This won’t impact your allowance. Some banks won’t offer a flexible ISA.
- Non-Flexible accounts mean that you cannot take any of the funds in your ISA out of the account and return it in the same tax year.
Can I access my money in a Cash ISA?
It depends on what kind of account you choose.
The more notice you have to give the higher the interest you get. So on a one-year fixed rate ISA you will get a higher interest rate than an instant access. Different options include:
- instant access Cash ISAs, where you can access your money whenever you want to.
- fixed-term options which will lock your money away without access to your cash for a set amount of time (eg. one year, two years, five years).
- Flexible ISAs will allow you to withdraw your money at any time, and return the money within the same tax year. Flexible ISAs will generally have lower interest rates, so the returns will be lower – but the benefit of that might be outweighed by the ability to withdraw your funds.
Are Cash ISAs worth it?
It’s always a good idea to shop around for the best interest rate before opening an ISA – but don’t become complacent once you have opened an account. You can transfer your ISA to another provider if you find a better interest rate with a different bank, assuming the new bank accepts transfers.
There can be a large difference between the worst and the best performing ISAs which means you need to shop around to get the best possible interest rate.
Is a Cash ISA safe?
You can get a Cash ISA through a bank, which are Financial Conduct Authority (FCA) approved and the Financial Services Compensation Scheme (FSCS) protects your savings up to £85,000.
How do I open a Cash ISA?
In order to open a Cash ISA:
- You will need to be over the age of 16
- You need to be a UK resident.
- You need to have a national insurance number.
- You have not opened another Cash ISA this tax year.
- You have not already reached the limit in savings in ISAs this tax year.
Click here for a selection of Cash ISAs so you can find the best rate for you.