Whether you’re saving for the trip of a lifetime, looking to buy a new car or just saving for a rainy day, the tax man likes to get his hands on your savings whenever he can. By saving your money in a cash ISA, you avoid paying tax on your savings. Although the amount you can save each year tax-free is limited, they’re a great option for anyone looking to earn a little more interest from their savings. Take a few minutes to read this handy guide to cash ISA’s to see if they are the right savings product for you.
A Cash ISA (or Individual Savings Account) is designed to allow you to save without paying tax. If you’re saving any amount of money, however small, you should have a cash ISA to maximise your returns. When you consider that in a standard instant-access savings account you will see 20 percent of your interest earned go to the government, it makes sense to save in an account which lets you keep more of your interest to yourself! There is a yearly limit to how much money you can save in your cash ISA, and this changes each year. For the tax year from April 2020 – April 2021, the maximum allowance amount you can save in your cash ISA is £20,000 per year.
You can have more than one ISA accounts, but you are allowed to open only one each tax year. You can’t lose you money paid in ISA as they are safe way of saving, unless the interest rate applicable to them is less than the rate of inflation.
There are a number of different cash ISAs available to suit your needs.
An instant-access cash ISA allows you to pay in and take out money whenever you please, and is a great option if you need access to your savings from time to time. Instant-access accounts don’t normally pay such high levels of interest as those which restrict access, but are the best accounts for anyone who may need to rely on their savings at short notice.
Fixed term cash ISA’s usually mean that the interest rate is fixed and you won’t have access to your savings during the term of the account – this can be anywhere from a few months to a few years. During this time, you will normally be able to withdraw your money if you need it in an emergency, but will be penalised and could lose your interest if you do so.
Cash ISA’s are a great, tax-free way to save money, and are ideal for anyone investing up to £20,000 this tax year. Whether you’re saving for a reason or just putting some of your salary aside for the future, a cash ISA is a great way to start saving!
The information on this page is designed to help you understand more and make more informed choices. We do not receive any commissions, instead we are funded from companies that we advertise on our website.
You may want to read: Detailed guide to ISAs