Is A Cash ISA Worthwhile?
Is it worth having a Cash ISA, despite the lower interest rates? For some savers, the answer is a resounding ‘yes’ – especially if you’ve not yet used your tax ISA allowance for 2019/2020.
What is a Cash ISA?
An ISA (an individual savings account) is an savings account with a tax-free wrapper, meaning your returns from interest on a Cash ISA are protected from the taxman.
You can deposit up to £20,000 for tax year 2019/2020 in any ISA account as long as you don’t open more than one type each tax year.
Unlike a Cash Savings Account, there is no cap on the tax-free interest you can earn – so if you’re interested in tax-free interest, an ISA is the way to go.
There are various different kinds of Cash ISA which can suit different individuals, including:
- Instant Access Cash ISAs
- Fixed Rate Cash ISAs
- Structured Cash ISAs
- Lifetime Cash ISAs
Why would it not be worthwhile to have a Cash ISA?
The interest rates on Cash ISAs are a bit miserable – you can earn interest tax free, but you might not be earning very much of it.
This has put some people off Cash ISAs as an account – especially as you can earn up to £1000 without tax in a Cash Savings Account as an alternative.
But – this doesn’t mean that opening a Cash ISA isn’t worthwhile.
Your Yearly Tax Allowance: Use it or Lose It
A Cash ISA might be a good idea for you if:
- You haven’t opened any Cash ISAs this year
- You want to earn interest but know you’ll need access to your cash
- You want to save and know you won’t need the funds for a fixed amount of time
- You’ve already used your tax savings allowance on a Cash Savings Account
- -You want tax-free returns, but don’t want to put more of your money into a Stocks and Shares ISA.
- You want tax-free returns, but don’t want the risk of putting your money into a Stocks and Shares ISA.
Your £20,000 tax free allowance doesn’t roll on to next year if unused; it’s a use it or lose it scenario. So if you have cash you want to save and you’re not sure what you want to use it for, it’s worth putting it into a Cash ISA before the new tax year starts on April 6th to make the most of your allowance for this year.
Plus, if you change your mind later on, and want to transfer to another ISA account with a better rate/different function, you can do this (and we’ve written a blog telling you how!).
What are my other options?
If you want to get higher returns on your savings, then you might not want a Cash ISA. The interest rates are known to be very low – so if this puts you off, your other options are:
- Stocks and Shares/Investment ISAs
- Innovative ISAs/Peer-to-Peer ISAs
- Cash Savings Accounts