Cash ISAs

What is a cash ISA?

An ISA is a bank account that allows you to save a certain amount each year without having to pay tax on either the balance or the interest. Currently you can save up to £5,760 in a cash ISA.

You get a new allowance each tax year, which runs from the 5th of April every year, and, if you don’t use it, you lose it! Some ISA providers will let you withdraw the cash, but it’s important to remember that, once you’ve withdrawn it, you can’t put it back if it would mean you’ve saved more than your allowance for that tax year.

What about previous years' ISAs?

Because you can pay into only one ISA each year, you might end up with several different accounts. This isn’t a problem except that providers can often change the rate of interest so you’re not earning as much on the balance as you were when you opened the account.

Some providers will let you transfer in balances from previous years. The important thing to remember is to never withdraw money from a cash ISA- it will lose its tax-free status if you do. You can arrange a direct transfer into a new ISA through your provider which won’t affect your current year’s allowance or the tax-free status of your existing savings.

Savings tools

Getting into the savings habit can often be the hardest part, as it can often mean you have to tighten your belt or stick to a stricter budget. To help you work out where you can make some changes to your spending we have developed a handy cost calculator so you can work out quickly and easily just where your money goes each month to help you decide where you could spend less to help you save more.

Cost Calculator Tool

If you have got a savings goal in mind, or would like to know just how long it will take you to reach your target, we have a savings calculator that can help. You can see just how much you need to save each month and how much interest you will earn.

Savings Calculator

Deciding on exactly which savings account to use can be tricky, there are fixed accounts, ISAs, easy access accounts - basically lots to choose from! To try and help you determine just where to put you money we have come up with a handy savings tree that shows you some of the places you can put your cash. This isn't financial advice, but rather a starting point for you to start thinking about what savings accounts are right for you.

Savings Accounts Decision Tree

Glossary

Basic Rate Tax

Basic rate tax is charged at 20% on the first £35,000 of income above your annual personal allowance. The personal allowance is £9,205 for the under 65s, £10,500 for those aged 65-74 and £10,660 for the over 75s.

Instant Access

This type of account allows you to deposit or withdraw your money at any time, with no notice or penalties.

Interest

This is the amount the financial institution that holds your account will pay you in return for saving with them. To find out how much your savings will earn, you can look at the AER- the Annual Equivalent Rate. Shown as a percentage, this tells you the rate of interest you will earn over the period of 1 year. The interest rate may be fixed, which means it will not change throughout the life of the account, regardless of whether the Bank of England base rate goes up or down. Alternatively, the rate may be variable and fluctuate along with the base rate.

Introductory Bonus

An introductory bonus is a fixed amount of extra interest which will be paid on any money you have saved in a variable interest account for a certain amount of time after you open the account. Once the introductory period is over the rate will revert to the normal variable rate, so you may wish to consider moving your money to make sure you're always getting the best rate.

ISA

An ISA is a type of account which allows you to save without paying tax on the interest you earn. There are several different types of ISA- the most common is a cash ISA, in which every adult over the age of 18 can save up to £5,760 each year. There are also investment ISAs- commonly known as stocks and shares ISAs- where you can save another £5,760 on top of your cash ISA allowance, or any amount up to the full total of £11,520 if you decide not to use your full cash ISA allowance. Finally, there are Junior ISAs which can be opened for children under the age of 18.

Lump Sum

A one off amount of money an individual wants to pay into an account. Most accounts with a fixed term will require you to pay in a lump sum and will not allow you to make any more deposits, whereas instant access accounts may allow you to make regular payments into the account.

Standard Variable Rate

This is the basic rate at which financial institutions pay interest to their savers. It's usually a certain percentage amount above the Bank of England base rate. Many savings accounts have an introductory bonus rate which allows you to earn more interest on your savings for a fixed length of time before the amount you earn reverts to the standard variable rate.

Tax-Free Allowance

The amount allowed to be invested in an ISA account which is free of income tax. This is currently £5,760 in a cash ISA or £11,520 in an investment ISA.