What do you need to know about Individual Savings Accounts?
ISAs (or Individual Savings Accounts) are much more than just savings accounts, bringing customers a tax-efficient way to look after their nest eggs. However, there are some technicalities when it comes to making withdrawals, transfers and deposits - so, if you're looking to open an ISA, it is crucial that you understand the ins and outs of this type of account. Read on for our guide to some of the key things you'll need to consider when it comes to handling your ISA.
In the 2014 Budget, the government announced changes to the standard ISA that would make the product simpler and more convenient for customers. The New ISA was introduced on 1 July 2014, offering savers a more generous subscription limit. You can save up to £20,000 for the tax year 2017/18.
The changes apply to deposits made in Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs or any combination of these. Should you wish to split your annual allowance between the different types of ISA (Cash, Stocks & Shares or Innovative Finance), this is possible as long as you are over the age of 18. An individual can only pay in to a maximum of one Cash ISA, one Stocks and Shares ISA and one Innovative Finance ISA each tax year. Savers are also now able to put their whole allowance into a Cash ISA in one go, should they wish to. ISA rules are subject to change by HMRC.
The interest that you earn from a Cash ISA will be tax-free, meaning you could see greater returns on your investment compared to conventional savings accounts. The tax benefits will depend on your individual circumstances. Put simply, everything you earn from your Cash ISA, you keep.
As long as savers go through their provider's dedicated ISA transfer process, they can move money from one ISA to another without losing the tax-free benefit. The same applies if you want to make a transfer between two Junior ISAs - just ensure that you don't exceed your annual allowance.
The cash in question could be all of the current tax year's subscriptions, or part of a subscription made in previous tax years. If you're thinking of transferring to another provider, check that they do actually accept transfers, and make sure they don't have any restrictions in place that could affect your savings, such as transfer charges.
It is important to note that you can now transfer money from a Stocks and Shares ISA and Innovative Finance ISA to a Cash ISA and vice versa.
If you withdraw money from your flexible Instant Access Cash ISA, it will immediately lose its tax-free status. You can make as many deposits and withdrawals as you like into your Instant Access Cash ISA, until all of the deposits you’ve made (including those into a Stocks and Shares ISA and Innovative Finance ISA if you have one) add up to £20,000 for the 2017/18 tax year.
The flexible Instant Access Cash ISA allows you to withdraw and replace money as often as you’d like from both current and previous years’ subscriptions, as long as the money is returned to the account before midnight on the 5th April in the same tax year it was withdrawn. However, we recommend that you do so by 5pm on 5th April to ensure that any funds are in your Account before the cut off deadline at the end of the tax year.
The Fixed Rate Cash ISA gives you a guaranteed interest rate for one year - but this means that you can't withdraw any money during the fixed term unless you close your account and withdraw all of the money.
Account holders of Junior ISAs will not be able to withdraw any money until the child in question turns 18, but they may transfer the cash to another Junior ISA.