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.

  • How ISA Customers are Losing Out

  • Those who have money to save have been suffering since the Bank of England base rate was cut to just 0.5% in March 2009.  Since then savers have been finding it difficult to get a good rate on their savings.  Many people invested in tax free ISA accounts which were a great way to get the most of their savings in these harsh times.  The problem is that many banks and building societies are now paying less interest to savers for their cash ISAs than they are offering to those with savings bonds which are taxable.

    For anyone with £10,000 sitting in a cash ISA, the amount that could be lost each year in interest is £75 while anyone with the full amount built up since the ISA was launched could be losing out on £375 per year.  The reason for this is that many of the banks are not passing on the full savings to the customer and are instead pocketing the tax relief themselves.  There are a number of institutes taking advantage of this and are paying out different interest rates to their ISA customers and their Taxable Bonds customers. 

    The Bad Guys

    Leeds Building Society are paying out a one year fixed rate of 3.6% to those with taxable bonds but those with a cash ISA are only getting 3.25%.  The Halifax are paying a fixed three year rate of 4.05% to those with taxable bonds but just 3.7% to their ISA customers.  They are not the only institutes guilty of this as Britannia pays out 3.75 percent on taxable bonds but just 3% on a cash ISA.  Banks and building societies guilty of offering less interest to their cash ISA customers are in effect stealing from them as they are pocketing some of the tax relief provided by the government.

    The Good Guys

    Thankfully not all banks are lining their pockets with tax relief meant for savers.  M&S Money and Nationwide are among those providers who are paying the same rate to taxable bond customers as they are to their ISA customers.  Savers are advised to have a good look around to make sure they are getting the best deal when it comes to their ISA accounts.

    With inflation sitting at five percent, savers are really being squeezed at the moment.  With the base rate expected to stay where it is for the foreseeable future, it is no wonder that some people are upset at how some banks are taking advantage of long term savers.

  • 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.