All about Cash ISAs

If you are interested in getting a Cash ISA, you can find out here how they work, what makes a Cash ISA different from a Shares ISA and how to get the most competitive Cash ISA.

Why should you save into a Cash ISA?

Usually, you have to pay income tax on the income you earn from your savings. But if you put your savings into a Cash ISA, instead of a regular high street savings account, you do not have to pay any tax on the interest you earn. This is because the Cash ISA acts as a sort of protective wrapper from the taxman. It’s the Government’s way of encouraging us all to save.

There is a limit on the amount you can pay into a Cash ISA; this is currently £5,940 per tax year. (The tax year runs from the 6th April to the 5th of April the following year).

Finding the best Cash ISA

The key things to look for when opening an ISA is that you get the best rate of interest possible at the start and a good rate that continues into the future. Getting a competitive rate of interest at the start is straight forward, but ensuring the rate will remain competitive is difficult because no-one knows which Cash ISA providers will lower their rates in the future.

Banks often entice us to open an account by offering high initial interest rates and then cutting them after a certain amount of time. They usually send a letter to tell us this but because it can be mistaken for a circular, it’s often thrown in the bin.

So be sure to check the length of any bonus or guaranteed rates to see how long you will be able to benefit from them. Usually, these features last for a year or less.

The ‘BestBuy’ tables that are published in weekend sections of many newspapers and financial websites are a good place to look to find out who pays the highest rates. But do keep an eye out for consistently-good performers too.

Using your ISA

If your interest rate drops, or doesn’t increase at the same rate as other ISAs on the market, you can move your ISA to a different bank or building society that offers a more competitive rate. Just tell your new bank that you’d like to move your ISA to them and they’ll organise the transfer for you.

Under no circumstances should you close your ISA, withdraw your cash and open up a new ISA to put it in. This would be a new subscription and would mean that some or all of your annual ISA allowance would be wasted.

To avoid this, you should leave your ISA alone, and allow your new ISA provider to take care of the transfer of funds. Be aware that some ISAs charge you for switching accounts, so check the terms and conditions of your ISA before you open the account as it’s best to avoid these type of accounts altogether. Similarly, some ‘best buys’ do not allow transfers in from existing ISAs.

One additional point about cash ISAs is that normally only those 18 and over can open one, but anyone aged 16 or over is able to start a Cash ISA. Although not many people aged between 16 or 17 pay tax, if you plan to keep your money in your ISA for a few years, you can make a saving on the interest you will earn in the following years.

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Some important information about this page

We are normally made aware of changes to rates and products, but very occasionally changes may occur without our being notified. If you spot any mistakes or inaccuracies on our site, please contact us.

Please note that the services and products featured are those made available from advertisers and may not necessarily be the best offers on the market. For more information, please see our Savings advertising disclosure.

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