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.

  • Different Types of Cash ISA Account - Which is Right for You?

  • Previous articles have explained about Cash ISAs and the amount which can be saved each year.  The figure which can be saved in the current 2011-2012 financial year is £5,340.  The amount which can be saved in the financial year 2012-2013 will be £5,640.

    There are different options for cash ISA savings depending on what each person is looking to achieve.  Fixed rate cash ISA is exactly what it suggests – over a specific period of time, which may be two or three years, the amount of interest paid each year will remain the same for the specified time.  This is a good choice for people who want to know how much their savings will be worth at the end of that time.  It is also possible for those people who want to supplement their income, to have the interest paid direct to them each month.  At the end of the fixed period it is essential to transfer the balance on the account to another account as interest will then accrue at the prevailing rate at that time.

    An Instant access cash ISA account is probably the best solution for those people who may need to use some of their money at short notice.  By choosing an instant access account there won’t be any loss of interest if some funds are withdrawn.  It is essential to realise that, for having the ability to withdraw funds without notice, the interest rates paid on Instant Access Cash ISAs, can vary enormously.  To give an example, one online building society is offering 2.75 per cent for existing savers using their instant access cash ISA account.  This is up until 31st January 2013 and it is available for customers with more than £1,000.  It is important that, at the end of that time all funds are transferred to another account, as the current deal which finishes at the end of January 2013 reduces the interest on cash ISAs to its then current variable amount figure which is presently 1 per cent.  

    Growth ISAs are for those people who would like the potential savings to increase more over a longer period of time.  This may be considered a more risky option as, and this can happen with all investments, there is the possibility that the capital may reduce, as well as having the opportunity of increasing.
     
    Whichever option is taken regarding cash ISA accounts it is important to take advice from an independent expert.  It is all too easy once a good account has been found for cash ISA savings, to start a new account there the following year.  It may be that they are offering the best rates of interest, and if so, obviously, save there again.  In some instances, there will be different companies offering better rates.

    When everything is considered, it is the saver’s money and they must be confident in where their funds are being held.  Don’t rush into anything, take advice and everything should be fine. 

  • What is a Cash ISA?
  • 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.
  • How do cash ISAs work?
  • 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.
  • What to watch out for
  • 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.