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Cash ISAs
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Cash ISAs
Compare cash ISAs >>
Remember the Beatles song about an over-zealous taxman? Well, had ISAs existed in 1966 that song may never have been written.
Here's our guide to beating the taxman with a fully topped up cash ISA.
Once you've digested this guide, compare ISA accounts to find the ISA that most accurately suits your needs.
Why choose cash ISAs over shares ISAs?
Cash ISAs are a surefire and safe short term bet, there’s no risk involved. There is, however, an onus on you to keep topping up your ISA to its limit. Share ISAs are far more risky and generally perceived as long term investments. You should only park money in a share ISA if you’re sure that you can live without the funds over a prolonged period.
Keep your eye on inflation rates though. This is the only factor that could potentially erode into your ISA gains.
If you're not exactly sure what a cash ISA is, use our introduction to ISAs as a guide.
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How do I maximise my gains from a cash ISA?
- Invest as much in the ISA as possible at the end of one tax year, or at the beginning of the next. The current tax year ends on April 5th, with the new tax year beginning the following day. If you don't fill your ISA alowance before the end of year deadline, then you will lose the tax free privilege.
- Use all your entitlement.
- Don’t drip-feed the allowance into your fund bit by bit. Park the full allowance in early if you can. You will receive greater returns that way.
- Check out the costs and associated charges you have to pay to set up and run your ISA to ensure they don’t cancel out the tax benefits.
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Can I withdraw money from my ISA after I’ve invested it?
Yes you can, but once you’ve filled the limit, you won’t be able to top it up again.
There are three different types of cash ISA: Easy access, fixed rate and notice accounts. In the past, fixed rate and notice accounts have offered more competitive interest rates than easy access accounts, but that is not always necessarily the case these days.
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Can I switch ISAs?
Absolutely, but be sure to avoid withdrawing the cash from your existing ISA, this will cause you to lose your tax free entitlement. Ask the fund manager of your new ISA to set up the transfer on your behalf. Not all ISAs allow transfers so check first before you enter into an agreement.
Similar to credit card introductory offers, a number of ISAs come with enticing preliminary offers that expire over time. Therefore it makes sense to ride out this introductory period, and then switch ISAs when the favorable rates disappear.
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In Summary
- Cash ISAs are a useful vehicle for short term gains. Those wanting to make a long term, high return, but high risk investment should consider a share ISA instead.
- Use all your cash ISA allowance or you’ll miss out on potential tax breaks.
- Assess ISA running costs against any gains you're likely to make.
- Try not to withdraw money from your ISA. If you’ve reached the ceiling of your allowance then you will not be able to re-invest.
- When switching ISA accounts, treat the move as a transfer rather than the closing of an account and opening of another.
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Our Recommendation
The Icesave (www.icesave.co.uk) easy access ISA accepts transfers, and offers a competitive interest rate of 6.1%.
The Alliance and Leicester (www.alliance-leicester.co.uk) direct ISA offers a whopping 10% interest rate on your investment; however you must be an Alliance and Leicester current account holder to apply. This ISA is open to existing Alliance and Leicester customers and new applicants, and to be accepted you must agree to deposit at least £500 in the current account each month.
The Barclays (www.barclays.co.uk) tax haven ISA offers a high rate of interest (6.25%) over the course of a year, although it does not accept transfers from existing ISA accounts.
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