Cash ISAs
April 2010
A cash ISA is an Individual Savings Account - it's similar to a savings account that pays interest, however the interest your money earns in an ISA is tax-free.
As of 6 April 2010, your annual ISA investment limit has increased to £10,200, of which up to £5,100 can be saved in cash.
Look around for the best interest rate when you take out your ISA. Remember, a competitive rate over a longer period is more important than a good introductory rate. Over the long term, you may build up a sizeable amount and you'll need to consider the benefits of compound interest. See our feature on compound interest for more information.
Read the small print. Guaranteed or bonus rates don't usually last forever. That high rate you get at launch may only apply for an introductory period.
To help you find the highest rates ’Best Buy’ tables are published regularly in the weekend money sections of many major newspapers. Many financial websites offer similar information but always be aware that not all of these sources of information are impartial.
Don’t be afraid to switch. Should the interest rate fall, or fail to rise in line with others on the market, you can usually switch your cash ISA to another provider, but watch out for any penalties. Talk to your new provider to help you to arrange the transfer.
Don't just close your current cash ISA or withdraw the money as you will lose your tax-free benefits. You should ask your new ISA provider to do the transfer for you after you have completed their ISA transfer forms. You don’t need to transfer the whole amount either. While it's true that the current tax year's ISA can only be moved in full, you are allowed to split previous years' allowances between different providers.
If you can avoid it, don't withdraw cash from your ISA as you cannot put it back without using up your current tax year's ISA allowance. Some ISA providers may charge you a penalty if you decide to move your funds, so you need to factor this in when you choose your ISA.
One extra point about cash ISAs is that anyone aged 16 or over can open one, unlike a stocks and shares ISA where you have to be at least 18 years old. And even though those aged 16 or 17 wouldn’t normally pay tax, if they intend to keep the money in the ISA for several years they will save tax on the interest they earn when they do start to pay tax in the future.
