Cash ISAs

What is a Cash ISA? 

A Cash Individual Savings Account (ISA) is a type of tax-free account, which can be used by savers to hold either cash or investments. They come in many forms, such as easy access, notice accounts or fixed term products - but there is no tax to pay on any interest earned, making them especially attractive for high and additional rate tax payers. 

How does a Cash ISA work?

You can contribute up to £20,000 per tax year into ISAs. You can spread your contributions across different types of ISAs, or contribute all of your annual allowance into one type, such as a Cash ISA. From the start of the 2024/25 tax year, you can now subscribe to more than one of each ISA type per tax year.

ISAs are the first place that many people should look to put their cash when they are planning their finances, after all when the Government is giving you a tax break, you should grasp it with both hands.

However, as they have increased in complexity, many struggle to understand the different types of ISA available, how much they can subscribe and when.

What are the pros and cons of a Cash ISA versus a 'regular' Savings account?

Cash ISASavings Account
  • Tax-free savings on interest income
  • Usually a higher rate of interest
  • You can subscribe to more than one Cash ISA per tax year
  • There is no limit of the number of savings accounts you can open
  • Inflation can often devalue money sat in an Cash ISA
  • Personal Savings Allowance can often boost your savings by up to £1000 of tax free interest, which would otherwise be taxable at 20% (i.e. saving £200)
  • Flexibility to utilise an ISA for Investment Products
  • Savings accounts are for cash only

What are the types of Cash ISA?

There are currently four main types of ISA that the current £20,000 annual allowance can be split between. these are; cash ISAs, Stocks and Shares ISAs, Lifetime ISAs and Innovative Finance ISAs. 

How many Cash ISAs can I open?

From the start of the 2024/25 tax year, it is now possible to make multiple subscriptions to the same type of ISA in one tax year. This means you can now subscribe to more than one Cash ISA in any tax year

What interest rate can I get with a Cash ISA?

Our handy tool from Savings Champion will show you the best rates on a number of different accounts, see below for the latest rates.

How to use your annual ISA allowance

As noted you can deposit up to £20,000 into a cash ISA – the restriction of being able to put just half of your allowance into a cash ISA was lifted in 2015.

What is a portfolio cash ISA? 

Some providers have developed what is known as a portfolio ISA facility, which means that savers can open more than just one cash ISA with the same provider in the same tax year. But, not all providers offer this facility, so it's important to shop around and check what is on the market. 

Transferring a Cash ISA

As with any other savings account or investment, it makes sense to regularly review your ISAs to make sure you are still in the best place. But if you do decide to move any of them, you need to be aware of a golden rule.

Unlike a normal savings account, if you find a better option you must not close your account in an attempt to move the money. Instead, you need to undertake an ISA transfer. 

You should, therefore, contact the ISA provider that you want to move your money to (beware, not all providers will accept transfers though) and ask them to start the process for you. They will then contact your existing provider and get the ball rolling.

Closing an ISA ends the tax benefits for the money you held in that ISA but transferring it to another ISA without closing the account is the way to ensure you retain the tax benefits on that ISA money.

Navigating the ISA maze can be challenging, with a number of rules and restrictions to be aware of and different options to choose between.

But, while complex at times, this stalwart of the savings market should not be dismissed out of hand, as you may find that you miss out on valuable tax-free income and growth as well as a government bonus in some cases both now and in the future.

For support about how to use ISAs in the best way why not get in touch and arrange a free initial consultation today. We can help you better understand your options and find solutions that suit your needs. 

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