Cash ISAs
Looking in more detail at the cash component of your annual ISA allowance.
Overview
As mentioned in last week’s article, a Cash ISA is standard bank or building society savings account that is shielded from tax by being in an ISA wrapper.
Cash ISAs are available to any UK resident over the age of 16 (although many are only available to those over 18) and you can invest up to £3600 in any tax year.
What to look for in a cash ISA
How much does it pay?
The most obvious thing to look for when selecting a Cash ISA is the rate of interest that it pays. You can find lists of the best rates currently available in many newspapers and financial websites.
Remember that in most cases the interest rate will be variable so the amount of interest paid can change.
Some providers offer introductory bonus rates that are withdrawn after a certain amount of time. Once these bonus rates expire, the interest rate may seem less attractive.
Some providers also offer tiered interest rates for higher investment amounts. Hence, you need to be sure the interest rate you are looking at is relevant and appropriate for the amount you are going to invest.
How can I invest?
Like all savings accounts, most providers offer traditional “branch saving”. However many providers also offer “internet only” Cash ISA’s, these generally have a slightly higher rate of interest compared to the branch account.
When can I get my money out?
The vast majority of Cash ISA’s are instant access, meaning you can take your money out at any time without loosing interest. However just like with regular savings accounts, there are some that offer a higher rate of interest if you are willing to commit your money for a longer term, or if you are able to tell the provider in advance when you want to withdraw your money.
As an example, there are Cash ISAs that require you to leave your money invested for 3 years in a similar way to a building society bond, or require you to give 30 days notice of an intended withdrawal.
Is it a pure Cash ISA?
There are a number of products available that offer a Cash ISA with a comparatively high rate of interest but also require you to make an equivalent investment in another financial product (usually stock market based) from the same provider.
Can I transfer money in from another Cash ISA?
Many Cash ISAs allow you to transfer money into them from another providers ISA. Usually this transaction is free of charge.
Is my money safe?
Historically, the answer to this question has always been a resounding YES and savings accounts have been considered effectively zero risk investment.
Last year’s events have made many people question whether this is the case and if there is such a thing a zero risk investment.
Nevertheless, all UK based savings accounts are guaranteed by the government up to £50,000 (per account per provider) which is certainly a reassuring element.
