In the world of savings, ISAs are a popular choice for earning tax free interest on the money you save. There are lots of different kinds of ISA, such as Stocks and Shares ISAs, but the Cash ISA is among the most popular.
In this guide we’ll take you through the basics of Cash ISAs, including what they do and how they work and more!
Cash ISAs are a popular type of savings accounts that offer tax-free interest on the funds in the account. This means that, provided you stick to the rules of the account (more below), you can keep all of the interest you earn.
The tax-free returns provided by cash ISA accounts are among the top reasons that savers flock to them as it allows them to get earn interest without being subject to the Personal Savings Allowance.
Cash ISAs work in a fairly straightforward way with some differences to other savings accounts. A main difference from other savings accounts is that, given the tax free status of ISAs, they are aligned to the tax year rather than the calendar year. Therefore, ISAs typically pay interest annually on 5 April rather than 31 December.
You can open a cash ISA from as little as £1 provided that you’re over the age of 18. Once you’ve opened the account, you can start making deposits as frequently or infrequently as you please. However, you can only pay up to £20,000 into the account in the current tax year. This amount is reviewed by the Government annually.
The interest earned on the ISA account will be completely tax-free and doesn’t count toward your Personal Savings Allowance. So whilst there are some restrictions on the amount you can save in an ISA, you can hold an ISA and other non-ISA savings accounts at the same time.
One important thing to note is that the £20,000 annual savings limit on ISA accounts is not “per account”. In 2024, the Government announced changes to allow savers to have more than one ISA, however, if you have another ISA, including a stocks and shares ISA, the deposits made into your different ISA accounts will all count toward your £20,000 annual savings allowance.
You can save up to £20,000 in a Cash ISA in the current tax year (the tax year runs from 6th April to 5th April the following year). This £20,000 allowance can be split across multiple ISA accounts. For example, you could save £5000 in a Cash ISA, another £5000 in a Stocks and Shares ISA and up to £10,000 in other ISA accounts.
This savings allowance only applies to the funds deposited into ISA accounts. This means that if you have more than £20,000 to invest, you can still save any surplus funds in a non-ISA account (eg a typical Easy Access or Fixed Rate Bond account), however this would be subject to tax via the Personal Savings Allowance.
This is worthy of note for savers with large deposits or higher rate taxpayers (who are subject to tighter limits under the Personal Savings Allowance) because it allows them to maximise the tax efficiencies of their savings.
There is no limit on the number of cash ISA accounts that you can open with different providers. This means that you can open a Cash ISA with us and another with a different building society or bank. However, it is worthy of note that the overall £20,000 limit remains and that we only allow one ISA account per person.
You might open multiple ISA accounts to have more saving options for different saving goals. For example, you might have a Cash ISA account to offer stable tax free savings, whilst investing other money in stocks and shares ISA, should you have the risk appetite.
Cash ISAs are an excellent saving option for people who are looking to earn interest on their savings without having to pay tax on it.
Unlike Stocks and Shares ISAs, your capital is stable with a Cash ISA and won’t be at risk to fluctuations in the stock market (for example). In addition, a Cash ISA at a UK Bank or Building Society is covered by the Financial Services Compensation Scheme and up to the value of £85,000 is protected in case the institution fails.
There are a wide variety of benefits associated with cash ISAs, the main being the fact that you don’t pay any tax on the interest that you earn, meaning that they allow your money to do more for you. There are also a range of different options when it comes to Cash ISAs, such as fixed rate accounts, easy access accounts, notice accounts and more.
Cash ISA accounts can even be inherited by a surviving spouse or civil partner without it affecting their allowance for that tax year. This provides couples, particularly in later life, the reassurance that their hard-earned savings can be fully transferred over to a loved one should the worst happen.
However, there are some drawbacks when it comes to Cash ISA accounts. The primary drawback is that you’re only able to deposit up to £20,000 per tax year. As mentioned before, if you’re looking to save large amounts money, the limit on the amount you can invest will mean you may have split your savings to still take advantage of your ISA allowance.
Interest rates on Cash ISA accounts may be lower than other types of savings accounts, for example fixed rate bonds. If the savings interest you earn still falls below your Personal Savings Allowance tax threshold, your money may be better invested elsewhere.
Here at Mansfield Building Society, we offer a range of different Cash ISA products to suit your unique needs.
Simply browse our available savings products and find one that suits you best. If you wish to speak to a member of our savings team simply contact us on 01623 676350 or visit your nearest Mansfield Building Society branch!
Please note
This article is for general information only and does not constitute advice. For financial advice, please contact a qualified financial adviser to discuss your personal circumstances.
Our intermediaries website is for use by authorised intermediaries only.
Please click on the link below to proceed
Continue to intermediaries site
Contact
Find us
Login
Menu
