In today’s unreliable financial climate, it is important to start thinking about the future. It’s never too early to start saving for a rainy day, and what better way to watch your money grow than to open an account which doesn’t tax you on your interest- a cash ISA. Follow this guide, brought to you by moneysupermarket, to help you make the most out of your cash ISA.
The main thing that sets an ISA apart from a normal savings account, it the tax free benefits that you get on interest. On a normal savings account, you will normally have to pay 20% tax on any interest you earn, whereas with an ISA, you can save tax-free until you reach £3,600. Currently, for the over 50’s, this is slightly more at £5,100, but as of April 2010, £5,100 will be the benchmark for all savers, no matter what age you are.
It is important to remember that you can’t deposit more than the agreed limit into your cash ISA account, and if you withdraw some money from your account you will not be able to deposit any more until the start of the new tax year (unless you have put in less than the allocated amount- £3,600 for the under 50’s and £5,100 for the over 50’s). It is worth letting your money sit in your ISA account for as long as possible, as you can lose the tax-free benefit on the money you withdraw.
If you spot a better deal with a different cash ISA provider, it is important that you don’t just withdraw the money from your current account and place it in another- you may lose your tax benefit. It is best to ask for a form from your current provider, who will then set up your transfer; and then you won’t lose the tax-free aspect of having a cash ISA. Clare Francis from moneysupermarket says, ‘you will probably be penalised with a loss of interest if you do need to access your money during that time) and notice accounts obviously require you to give the provider warning before you make a withdrawal.’
It is important to shop around before settling for a cash ISA account. You can compare several accounts at moneysupermarket, where we compare fixed rate and variable rate accounts to get you started with your savings.
A cash ISAs guide, by the Savings team at moneysupermarket.