Individual Savings Accounts (ISA’s)
If you want to save back money, then one way to do this is to use an Individual Savings Account (ISA). There is so much information available for ISA’s that it can be difficult to go through and understand completely, the first thing that you will need to realize is that an ISA is a specialized type of savings account. The reason that it is different from other types of savings programs is that you do not have to pay tax on the income that is generated through the ISA. This is a program that was established in 1999 and it allows you to move money around easily.
Because of the way that the ISA is set up you can choose to make a long term investment for your retirement purposes, or a short term investment that will allow you to save money for a project or purchase you are considering. The way that you can do this is by choosing from either a Cash ISA or a Stocks and Shares ISA. In the duration of a tax year you can choose which type of account you want to make deposits into one of each of these types of accounts. So, you could have both a Cash ISA and a Stocks and Shares ISA if you need to different accounts for your needs.
If you are looking into a short term investment, then a Cash ISA would probably be your first choice. This is because it is much easier to move your money around in these types of accounts, so you can make deposits and withdraws as you need. On the other hand, you may find that you also want to have a longer term investment that would allow you to save up money for a home purchase or retirement then you would most likely want to put your money into a Stocks and Shares ISA. However, you should know that because of the fluctuations in the market that it might be possible for your investment to decrease. Also, while it is possible for you to move money from a Cash ISA into a Stocks and Shares ISA without losing your tax free status, it is not possible for the opposite to be done as money cannot be moved from a Stocks and Shares ISA to a Cash ISA.
If you are considering an ISA and are looking at different ISA managers then you will want to make sure that you are getting the best rates. This is because a certain ISA may pay out at a special introductory rate, but after this period expires you will most likely want to make sure that you look for another ISA manager so that you can find the best rate on the market at that time. There is often a lot of competition for Cash ISA rates, so you should be able to find a good one that will work for you, just be sure to transfer the money. This way you do not risk losing the tax-free status of the money in the ISA by withdrawing it.
- Are We Getting the Interest Due to Us on Our ISA Accounts?
It was recently claimed by Baroness Stowell a Conservative peer, that banks are failing to offer the same rate of interest for ISA accounts that they are offering for fixed rate bonds. Tax is payable on fixed rate bonds but not on an ISA account but these banks are offering higher rates of interest for the fixed rate bonds despite the fact that a fixed rate ISA could be running for the same period of time.
The cash ISA has encouraged so many people in the UK to start saving which is what it was created for and this is a good thing. However with £172billion in cash ISAs last year it seems as though banks are taking advantage by not offering the rate of interest that we are due.
However, it would seem that not all high street banks are paying less for fixed rate ISAs. The Nationwide building society is paying the same interest rate for fixed rate ISAs as it is for fixed rate bonds. The reason many banks and building societies are not following the Nationwide is because they know that even though they may be offering lower rates for their ISA accounts, the customer still benefits from it because of the fact that it is tax free.
Lloyds TSB is another bank that is guaranteeing to pay ISA customers the same rate as its standard savings accounts but other institutes such as Northern Rock and Saga are offering lower rates for their fixed rate products.
At the end of the day the banks should be paying the same rate for both of these products and should not be benefitting by offering lower rates to the customer for their ISA accounts. The ISA was created for the benefit of the consumer and not for the bank to make more money. Consumer Focus is another group backing the calls by Baroness Stowell. Hopefully they will get their way and the consumer will get the full benefit of their ISA as it was intended.
The Bank of England’s historic base rate of 0.5% has been stuck since March 2009 and it has not been a good time for savers so the fact that banks are not giving us the full rate that we are entitled to is galling for a lot of people. There are many people who feel the shoulder of blame lies solely with the banks for the current economic troubles so the fact that they are continuing to take from us is very frustrating indeed.
- A cash ISA is, basically, an Individual Savings Account that is based on cash instead of investments. The main benefit of a cash ISA over an investment-based ISA is that the money is tax-free or may be eligible to earn tax benefits. In a way, a cash ISA is very similar to a savings account. The other benefit is that a cash ISA is not as risky as other ISA’s because you are saving the money, not investing it in the market. This means your savings will always be accessible and secure.
- A cash ISA works very similarly to a savings account. You make a deposit into the cash ISA, and it begins to earn interest - generally, this interest is paid annually, although some cash ISA’s may pay quarterly or even monthly. A cash ISA is different from a savings account in that it is tax-free, meaning you make more money than you would with a standard savings account. It is also different from other ISA’s in that it is based on cash instead of investments, so there is no worry about losing money on the stock market.
- While a cash ISA may look secure, reliable, and attractive with its lack of risk and tax-free status, there are a few things you should take into consideration. First, note that some ISA’s have an introductory bonus, meaning they will pay better the first twelve months. This means you may want to move your cash ISA to another institution after that. If you do, you’ll want to transfer the balance, not withdraw it. If you withdraw it, the funds may be taxed. Remember, too, that you can move money from your cash ISA to a stocks and shares account, but you can’t move it from stocks and shares to a cash ISA.