What is an ISA?

ISAs are a tax-free savings method

A cash ISA is a cash savings account that allows savers to benefit from tax free interest whereas an ISA is a tax-free way of saving cash or investing in stocks and shares.

ISAs are very similar to normal savings accounts and anyone aged 16 or over can open an ISA.

What’s the difference between a cash ISA and a regular savings account?

  • With an ISA you don’t pay tax on the interest earned
  • With a cash ISA you can invest a maximum of £5,340 per tax year (April – April)
  • If you withdraw cash from your tax ISA you can’t put it back without the amount being deducted from your maximum yearly deposit.

Is there a limit to what I can save?

Unfortunately you cannot benefit from tax-free interest on every penny you have. You can only pay £5,340 a year into a cash ISA.  This is a very strict figure and the year is considered to be from April 1st – March 31st (i.e. the tax year).

If you were to pay in £5,340 into the account on April 1st and then take out £1,000 the next day you cannot pay it back in so if you are planning on a long term cash ISA only pay money in when you know you won’t need to take it back out.

Do my savings remain tax free?

Yes, as long as you keep the money in an ISA.

If you save £50,000 over 10 years, for example, then every penny earned in interest on that £50,000 will be tax free.

Can I open more than one ISA savings account?

You can open multiple ISA accounts but you can only open one per tax year and the yearly limit applied across all of your accounts.

For example, you cannot put £4,000 in one ISA and £3,000 in another ISA in the same tax year as that would cross the £5,340 threshold.

If you open a new ISA you may be able to transfer all of the savings from a current ISA into the new ISA.

What should I look for in a cash ISA?

  • Can you transfer in cash from an old ISA? IF you’re looking to move your cash ISA to get a better rate of interest then you need to check you can actually transfer cash from your old ISA, not all accounts allow this.
  • Do you want to lock in your funds for a set time to increase interest? Many banks will offer you a higher rate of interest on your ISA if you are willing to lock your money in for a set amount of time. These deals will usually mean taking your money out early results in a fine, typically 180 days interest.
  • What is the minimum deposit? Some accounts have a minimum deposit of £1 but others have higher minimum deposits.

Why would I move my cash from one ISA to another?

The answer to this one is easy. The interest rate you get on your ISA will not usually last forever and most accounts offer a first year bonus in an effort to bring over customers. This means after the first year your interest rates may drop. You can combat this by moving your ISA each year for the best possible rates.