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.

  • Don't Forget to Use your Cash ISA Allowance

  • With only a few weeks left in this financial year, it will soon be time to consider your savings to keep in a cash ISA during 2012-2013.   Certainly, any amount from this year’s total allowance of £5,340 which hasn’t yet been saved for this year, ending in April 2012, should be done as soon as possible.

    Everyone knows the saying that “yes, we must get round to it, but there’s load of time yet” which then changes to “oh heck, the new financial year starts at the beginning of next week”.  When something seems a long way away, it is easier to defer thinking about it, particularly if it is a subject which doesn’t hold any specific interest.  People who do have cash ISA savings should give the matter some thought, because decisions when they have been made in haste can often be incorrect.   Don’t forget that the decision says how much your hard saved money will be worth in twelve months’ time.

    Don’t Panic 

    If you do get it wrong, most savings institutions will allow you to move your account.  Don’t withdraw any cash from the account and transfer it piecemeal to another bank.  The best way to change your account is by going to your new provider and discussing it with them.  They are likely to have a form which you can sign, and then they will do the work of getting your cash ISA savings transferred.  These transfers are supposed to take no longer than fifteen working days.

    Take the time to shop around because interest rates vary dramatically.  The rules are different if you want to transfer cash ISAs from previous years.  These can be split up and transferred into more than one account.  The simplest way to find out about whether your new provider will accept multiple cash ISAs from previous years is to ask them and they will be happy to assist you with the necessary forms which will be used for transferring money from your account.

    People can be worried about cash ISAs but there isn’t any need.  Think of it purely as a savings account, but try not to withdraw any funds from it as the money can’t be returned at a later time.

    Check your Interest Rate

    Anyone who has a cash ISA from previous years really should check the rate of interest they are receiving on their savings.  These do vary widely and some accounts pay possible over four per cent interest.  Considering that some companies are only paying about one per cent – and some are even lower than that – it is really worth transferring your savings and even agree to tie the money up for a couple of years.  Remember that all of your savings in a cash ISA receive interest which the tax man can’t claim from you.

    There are still 76 days left in this financial year so you do have time to put savings into an account to receive the interest tax free.

  • 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.