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        Updated: April 06, 2024

        What are the Benefits of a Cash ISA?

        Want to know whether a cash ISA is the right option for your saving needs? Read up on the benefits they offer in our guide to get a clearer idea

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        Since they were first introduced in 1999, Individual Savings Accounts, or ‘ISAs’ as they’re more commonly known, have provided people in the UK with a tax-efficient wrapper for their savings.

        There are a number of different types of ISAs available, catering for a whole range of investment aims. In this article we take a closer look at the main advantages of Cash ISAs.

        What are the key benefits of a Cash ISA?

        Whilst they share many of the same characteristics of a traditional bank or building society savings account, the main benefit of a cash ISA is that all interest is paid free of income tax, albeit with limitations as to the amount you can contribute (£20,000 for the current tax year – 2020/21).

        Cash ISAs are available to anyone who is a UK resident and over the age of 16. If you are a Crown servant working overseas (or their spouse/civil partner) you can also open a Cash ISA.

        In addition to the advantageous tax status of Cash ISAs, there are also a number of other benefits, such as:

        • Variety of different account options
        • Access to funds
        • Transfers to different providers

        Before reading up on the main benefits of cash ISAs, be sure to read up on how they compare to alternative options, such as stocks and shares ISAs. These offer the potential for higher returns with an increased level of risk.

        Variety of different account options

        Cash ISAs are available in a variety of different formats which offer specific features to suit a range of different savings preferences, such as:

        • Instant access cash ISA (allow you to pay money in at any time and also withdraw funds as and when required)
        • Regular savings cash ISA ( if you’d prefer to save a fixed amount each month)
        • Fixed-term deposit Cash ISA (these accounts would generally pay a higher interest for anyone who is prepared to keep their savings ‘locked-in’ for a set period.)

        For a regular savings Cash ISA you would be allowed to save up to a maximum of £1,666 each month (equivalent to £20,000 annual allowance). In the case of a fixed-term deposit account, interest rates will tend to be higher for longer periods.

        If you’d like to know more about the different types of Cash ISAs available and where to find the best offers, give us a call on 0808 189 0463 or make an enquiry so we can arrange for an advisor we work with to get in touch.

        Access to funds

        An instant access cash ISA would generally allow you complete access to your funds at any time, although any withdrawals would still have already counted towards your overall annual allowance.

        However, certain providers can offer ‘flexible’ cash ISAs which mean you can withdraw and replace funds within the same tax year without affecting the overall allowance limits.

        So, for example, with a flexible ISA if you deposit £10,000 and subsequently withdraw £5,000 your remaining allowance is still £15,000 providing these funds are re-deposited within the same tax year. Not all Cash ISA providers offer this facility.

        Providers offering fixed-term deposit  Cash ISAs may allow withdrawals up to a certain limit. However, if you wish to make a full withdrawal before the end of the specific term you will likely incur a penalty on the interest paid up to that point.

        If you’d like to know which providers offer flexible Cash ISAs get in touch and we can arrange for one of the advisors we work with to contact you.

        Transfers to different providers

        Another key benefit of cash ISAs is the ability to transfer your funds to a different provider if you wish. So, for example, if you identify a provider offering a more competitive interest rate you can transfer your savings without affecting their tax-free status.

        You have the option to move all or part of your ISA allowance from previous tax years, however, if you wish to transfer funds from the current tax year’s allowance you must move all of the money to your new provider.

        Whilst all ISA providers must accept transfers out not all will accept new transfers in, therefore, it is important to clarify this with any potential new provider beforehand. You should also allow the new provider to deal with the transfer rather than trying to do it yourself.

        Bear in mind that you can also transfer your cash ISA funds to an investment ISA to take advantage of the potential for higher returns.

        If you currently have a Cash ISA and would like to explore the opportunity of transferring your funds to a new provider, make an enquiry to get started.

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        Are Cash ISAs worth having?

        Yes, if you are risk averse. But keep in mind that an investment ISA could offer higher returns, as long as you’re comfortable with the increased level of risk.

        Regardless of whether you’re a basic, higher or additional-rate taxpayer Cash ISAs offer the most tax-efficient environment for your savings in the UK and, as outlined above, your funds remain largely accessible at all times if required.

        Make an enquiry and the advisors we work with will help you decide whether an investment ISA is a better option for you than a cash ISA.

        Are Cash ISAs worth it if I’m a non-taxpayer?

        Yes they are, particularly if you don’t anticipate remaining a non-taxpayer in the long term. But, again, an investment ISA could potentially offer greater returns if you are happy to take on the increased risk.

        Once your tax status changes your savings will still remain within the cash ISA’s tax-efficient wrapper.

        Should your tax status remain unchanged, if the interest offered by a Cash ISA is more competitive than a standard deposit account this will still be the best option for your savings despite there being no clear tax benefit.

        Are Cash ISAs a good investment?

        Cash ISAs are considered a good short-term investment for anyone who is looking for a safe, tax-efficient, haven for their savings.

        For anyone who wishes to consider more longer-term investment opportunities (5 years+) a stocks and shares ISA may be more advantageous whilst still retaining the tax-free benefits.

        If you’d like to consider more long-term options for your savings get in touch and we will arrange for an advisor we work with to discuss the options available to you.

        Are Cash ISAs safe?

        Yes, your savings are completely safe and well protected. Unlike a stocks and shares ISA which can fluctuate in value depending on the performance of the underlying assets, there is no risk of your savings depreciating in value within a cash ISA.

        Investment ISAs, however, can offer higher returns and the experts we work with can carry out a thorough assessment to establish how much risk you’d be taking on and suggest ways to minimise it.

        Are Cash ISAs covered by the Financial Services Compensation Scheme  (FSCS)?

        Yes, as with all other deposit accounts held within UK banks or building societies, the savings held within a cash ISA are protected by the FSCS up to a limit of £85,000 per person per authorised firm.

        If you hold more than this amount with one particular bank or building society you could consider moving some of these funds to another provider in order to retain this protection for all of your savings.

        Speak to a financial expert

        Cash ISAs provide a very safe, tax-free environment for your savings. They also offer a number of other advantages in terms of variety and freedom to transfer your funds from one provider to another.

        The advisors we work with can outline all of the alternatives and help you decide whether a cash ISA is the right option for you. An initial consultation with them is free and any information is always given in the strictest confidence. Call us on 0808 189 0463 or make an enquiry to get started.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in ISAs. Ask us a question and we'll get the best expert to help.

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        Richard Angliss

        Richard Angliss

        Finance Expert

        About the author

        Richard Angliss has made a career in financial services which stretches over 40 years.

        His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

        For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

        At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

        With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

        He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

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