ISAs

Guide to ISAs

What is an ISA?

The term ISA stands for Individual Savings Account.

There are two main types of ISA account - Cash ISAs and Investment ISAs (often also called a Stocks & Shares ISA). You can save in two separate ISAs in any one tax year: one cash ISA and one stocks and shares ISA. You cannot save in more than one cash ISA or more than one stocks and shares ISA in the same tax year.

There are a variety of Cash ISA accounts available from instant access to fixed rate accounts. The main difference between an ISA and other savings accounts is that tax isn't taken from the interest you earn from your cash ISA. On a instant access savings account for example, higher-rate taxpayers pay will have to pay 40% on any savings interest, while those in the basic-rate tax band pay 20%. So an ISA gives you the opportunity to earn more from your savings.

For further information on ISAs see our ISA guide.

Rules for using an ISA account

As an ISA gives you a tax free place to store your savings it is regulated by Her Majesty's Revenue & Customs (HMRC) as part of the tax system.

You are limited to £11,280 in new deposits into an ISA during this tax year which runs from April 2012 until April 2013. This means that if you add money to an ISA account but then decide to withdraw it, you lose that part of your allowance.

You can save in two separate ISAs in any one tax year: one cash ISA and one stocks and shares ISA. You cannot save in more than one cash ISA or more than one stocks and shares ISA in the same tax year.

What is an ISA transfer?

You may have some savings in an ISA already, as you have used a previous years allowance. You can move this existing pot into a new ISA if you wish, for example if there is a higher interest rate on offer from a different provider or a fixed term ISA has matured.

Are there any limits on transfers?

You can transfer all of the money you put into an ISA in earlier years or only some of it, it is down to you but you may be limited by the terms and conditions of the account. However, if you want to transfer the money you have put into an ISA in the current tax year, you must transfer all of it. Money from a cash ISA can be transferred into either another cash ISA or into a stocks and shares ISA but a stocks and shares ISA can only be transferred into another stocks and shares ISA.

How do I transfer my ISA?

An ISA must be transferred directly between your old provider and your new provider. You cannot make this transfer yourself by closing the first ISA and paying the money into a new ISA. Instead, you must ask the new ISA manager to arrange the transfer. The old manager may charge for making the transfer - check the terms and conditions to find out. Some ISA managers do not accept transfers in of existing ISAs.

How long does a transfer usually take?

Your existing ISA provider has up to 5 working days (or to the end of any required notice period) to send your ISA balance to your new provider upon receiving your ISA transfer request. This period is defined by the ISA Regulations and HMRCs ISA Guidance Notes on ISAs. Some providers will start to pay you interest from the day you submit your transfer request.