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Cash ISA
The tax efficient savings account

ISA stands for Individual Savings Account. If you're a taxpayer and looking for a savings product that won't charge you tax on any interest accumulated each year, Cash ISAs work well. In comparison, most ordinary bank and building societies savings accounts will require you to pay tax on interest earned. 

How do they work?

Cash ISAs are pretty straightforward, and no different to regular savings, instant access or notice accounts. They are simply a tax-efficient wrapper for cash deposits, enabling you to save without paying tax on the growth of your savings. Available from most banks, building societies and investment companies, the benefits to taxpayers include:

· Higher interest rates.
· No tax deducted on interest paid
· Quick access for short-term savers without losing the tax relief.
· Much lower risks than other investment channels

Are there any limits?

You must be aged 16 or over to open a Cash ISA. It is important to note that only £3,600 can be saved in any one tax year. The tax year runs from 6th April to 5th of April, every year. So if, for instance, you deposit £3,600 into your Cash ISA at the beginning of the tax year, but decide three months later to withdraw £1,500, you can't put any more money into the Cash ISA until the following tax year.

Things to remember:
1. No notice, penalty free Cash ISAs may not offer the highest interest rates.
2. Some high rates only apply to savers who deposit the full £3,600 and don't touch their savings until the ISA has matured.
3. If you decide that you would like to invest in stocks and shares as well as cash deposits, you can open a stocks & shares ISA, which allows you to invest up to £7,200, less the amount invested in cash, in any one tax year.
4. Once you've set up an ISA, it is possible to move it. But make sure you follow set procedures or you could lose the tax benefits.

Are Cash ISAs suitable for everyone?

Non-taxpayers, particularly young people and children may find traditional savings accounts offer them better interest rates. You'll need to register for gross interest by filling in an R85 form, available from your saving provider or tax office.

To discover more about ISAs or to talk over other tax-efficient savings options if your ISA limit has been reached, contact us today.

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