Cash ISA’s are a great way of earning tax-free interest on your savings if you are a UK resident.
The limit for ISA contributions in the 2016/17 tax year is £15,240. In April 2017, your ISA allowance will rise to £20,000 a year.
You can only open one Cash ISA per year, but it is possible to transfer to another Cash or Stocks and Shares ISA.
If you withdraw money from your Cash ISA, you don’t reset your annual limit. For example, say in one year you saved up to the Cash ISA limit and withdrew £1,000. You can’t top up that £1,000 immediately – you’ll need to wait for the next tax year. From April 2016, ISA providers can offer a flexible facility which will let you withdraw and replace money from your ISA, provided it is done within the same tax year. Not all ISA’s will let you do this and you should check that your ISA has this function.
If you want to change providers – for example, if you find another ISA that is offering a better interest rate – then you must ask your new provider to sort the transfer in order to maintain the tax free status of your savings.
Although your current provider is required to let you to transfer your ISA to a new account, your new provider may not accept ISA transfers. Make sure your new supplier will let you transfer your ISA before agreeing to switch.
Your current provider may charge a penalty for transferring. Check for any fees or charges to make sure transferring is still worthwhile.
You can earn tax free interest on your savings as with a standard ISA. These new ISAs are limited to one per person rather than one per house. You can’t contribute to a Cash ISA in the same tax year.
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ou won’t need to pay any tax on the interest you earn. But be aware that if you are a 16 or 17 year-old and the money in your ISA was a gift from a parent, they might have a tax bill under the parental tax settlement rules.
Not all Cash ISAs offer great interest rates. Shop around until you find a good deal.
Beware of teaser rates that are high for a short period of time before dropping off to a low level. If you find that you’re no longer earning a competitive interest rate, look for a higher rate Cash ISA to transfer into.
With instant access Cash ISAs you can withdraw money when you want to. With fixed-term Cash ISAs, you’ll get your money back at the end of the period you signed up for (‘the term’). Some accounts allow early withdrawals, but there may be a penalty. Your provider may also charge penalties and fees if you transfer your Cash ISA to another provider.
A new ISA was introduced to help first time buyers save towards the cost of buying their first home in autumn 2015. Savers can make an initial deposit of £1,000 when they open a Help to Buy ISA and then receive £50 for every £200 saved up to a maximum of £12,000. The tax break is capped at £3,000.
Cash you put into UK banks or building societies (that are authorised by the Prudential Regulation Authority) is protected by the Financial Services Compensation Scheme (FSCS). The FSCS savings protection limit is £75,000 (or £150,000 for joint accounts) per authorised firm.
Cash ISAs are available online, through a branch or over the phone depending on the product and provider.