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.
- Cash ISA - The Safety and Security of Savings
There are many questions which need answering and anyone who is considering saving their hard earned monies in a cash ISA account should make sure that the account chosen by them earns the highest possible interest.
There are several ways of looking at the interest position, and these can create something of a dilemma for a rookie saver. Many high interest cash ISA accounts appearing generous at present, insist on a “lock-in” for two, three, or even five years. Now whilst an interest rate of between three and four per cent may seem more than acceptable in the present financial market, should the UK economy improve and interest rates increase, then you won’t be able to move the ISA without paying a penalty, possibly negating the reason for changing accounts. This only applies to cash ISAs from previous years.
You can open a new account every financial year and take advice about the interest rates at that time. The maximum annual savings in a cash ISA is £5,340 but this figure does rise, in line with inflation every year.
Another regular question relates to the safety of all monies. There are now guarantees that each customer’s savings, which include cash ISAs, up to a maximum of £85,000, is secure within a UK regulated bank or building society account under the Financial Services Compensation Scheme (FSCS). One note of caution – not every single bank in the UK is UK-regulated – as an example, ING Direct Savings isn’t UK-regulated so take a little care before opening an account.
Those savers with more monies than this amount should split their funds into several different accounts ensuring that each balance remains below the threshold. If interest added does take the total above this figure this is accepted and will still be guaranteed. This seems a situation which may not happen to many people; however a property may have been sold, or an inheritance received.
One point to remember is not to use a cash ISA account in the same way you use your bank or normal building society account. Building societies are good at providing deposit or savings account, which allow easy access to the funds. This is particularly helpful when saving for a specific event like a holiday or even Christmas. When the necessary amount has been saved then it is withdrawn in readiness for the process to start again. It is important to maintain this type of account which grants easy access to those funds when they are required. You can ensure that you don’t withdraw money on a whim by having an account which requires 30 or more days’ notice before you can withdraw funds otherwise you lose the interest for that period. As interest rates aren’t particularly high, this won’t result in a high loss – however if you know that you will want to withdraw amounts on a regular basis, it is probably wiser to have a normal savings account.
A cash ISA won’t let you replace monies which have been withdrawn – it will only allow a top-up from the original amount saved to the total current figure which is presently £5,340. Use each account for the purpose of which it was intended and this will result in receiving the highest level of interest.
- 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.