Best cash ISAs: how to choose the right one for you

An ISA – which stands for Individual Savings Account – allows you to save and invest money tax-free. There are different types of ISAs available, but cash ISAs are by far the most popular. These basically work like a savings account you would have with a bank or building society, with the added guarantee that any interest you earn is tax-free. In this article, we’ll explain the differences between the different types of ISAs available and provide all the information you need to choose the best cash ISA to maximize your savings.

Before we dive in, it’s worth noting that there are several government allowances that mean many savers don’t pay tax on their interest anyway. For example, the Personal Savings Allowance allows base rate taxpayers to earn £1,000 interest a year tax free, while higher rate taxpayers can earn £500 interest free. tax (taxpayers at the additional rate do not benefit from the allowance).

Some people can earn even more tax-free. You can receive up to £5,000 in tax-free interest if your other income, such as from work, is less than £17,570. This is called the starting savings rate. You may prefer to use a regular savings account rather than a cash ISA if there is no tax advantage, especially if the interest rate you can earn on a savings account is higher.

However, cash ISAs can still be useful, especially if you cannot take advantage of savings allowances. Anyone aged 16 or over can open an ISA fund, regardless of income. There are a few rules to follow – for example, you can only pay up to £20,000 on all your ISAs in the 2021-22 tax year.

The tax-free guarantee with an ISA is also handy if your savings grow in the future and the interest exceeds the personal savings allowance, the government suddenly withdraws the allowance, or you get a raise. salary that pushes you to a higher income tax. slice, which reduces the amount of interest you can earn tax-free.

If you think a regular savings account is a better choice for you, then visit our best savings accounts article to see some of the best accounts and how to choose one.

READ NEXT: The best savings accounts in 2022

What types of AIS are there?

There are four types of adult ISAs that you can currently invest your money in. Cash ISAs are the direct equivalent of regular savings accounts which, like savings accounts, can be easy access, fixed rate, notice or regular savings accounts. You can read more about this on our Best Savings Accounts page.

The other three types are:

  • Stocks and shares ISA: These allow you to invest your money in the stock market, so you can lose money while gaining it. They have the potential to make your money grow more than a cash ISA, but you need to invest for at least five years to compensate for the ups and downs in the value of your investments.
  • ISA for Innovative Finance: The ISA provider lends your money to individuals or businesses and you earn interest on the loans. You risk losing money if borrowers do not repay loans.
  • ISA for life: These are designed to help you save to buy your first home or for your retirement and can hold cash or stocks and shares. You can only open one if you are between 18 and 40 years old. They let you pay up to £4,000 a year until you turn 50 and give you a 25% government bonus up to £1,000 a year. You can only withdraw the money if you are buying your first home, are 60 or older, or are terminally ill.

You can only invest money in one type of each type of ISA each tax year, but you can pay the whole £20,000 into one type or spread it over two or more types. However, only £4,000 can be paid into a lifetime ISA.

There is also ISA Junior to save for children, but there is a separate allowance for that. You can pay up to £9,000 into a Junior ISA in the current tax year on top of your £20,000 allowance.

Help buying ISAs were previously available to help you save a down payment to buy a home, but you can no longer open a new one.

You can transfer money in your ISAs to a new provider to get a better interest rate or switch to another type. You must contact the new provider to do this for you, because if you withdraw the money yourself, it will lose its tax-exempt status and be treated as a new deposit if you wish to reinvest it in an ISA.

If you are transferring money you contributed in the current tax year, you must transfer all of it, but you can transfer some of the money you invested in previous years if you wish .

How to find the best cash ISA for you

You should always compare current rates using comparison sites before taking out a cash ISA. But first, ask yourself the following questions so you know what to look for.

Do you need instant access to your money?

Taking out a fixed rate ISA will give you a higher interest rate, and you can usually make withdrawals before the end of the term subject to an interest penalty, but if you want to be able to access your money at any time, you will need to subscribe to an easy access ISA. Interest rates on accounts that are not fixed are generally variable and therefore may increase or decrease.

Keep in mind that if you take money out, you will lose that part of your ISA allowance for the year, unless you sign up for a flexible ISA. Flexible ISAs are available from some providers and allow you to repay the money you have withdrawn without having to use more of your allowance.

Beware of accounts with a subsidized interest rate for a period of time, which is usually one year, as the interest rate will drop at the end of that period.

All accounts have minimum and usually maximum amounts you can hold there, so make sure you have at least the minimum amount if you want to invest in a particular account.

Do you have a preference for how often interest is paid?

Most cash ISAs pay interest annually, but if you prefer to receive it monthly, consider choosing an account that pays you interest monthly. However, these may not be the highest paying accounts.

How would you like to be able to access your account?

Many of the best cash ISAs are online only. If you want to be able to use an agency, telephone banking or post office to manage your account, look for one that offers this.

Do you have savings of over £85,000?

Your money is protected up to £85,000 with each banking institution through the Financial Services Compensation Scheme in the event of bank failure. If you have more than that, or if the interest you’ll accrue will cause you to exceed that amount, try spreading your money across multiple providers for peace of mind.

Some banks share the same banking license, like Halifax and Bank of Scotland, so you only get £85,000 of protection between them.

Below, you can see the best easy access accounts currently available in two categories. As the best accounts change frequently, check the rates on comparison sites before signing up for one.

The Top Five Easy-to-Access Cash ISAs

Interest rate (AER) Minimum deposit Remarks
Saga 1.00%¹ £0 Managed online or by phone, interest paid monthly, transfers authorized
Marcus of Goldman Sachs 1.00%¹ £0 Managed online or by phone, interest paid monthly, transfers authorized
Shawbrook Bank, Easy Access Cash ISA Number 20 0.92% £1,000 Managed online or by phone, interest paid on anniversary, transfers authorized
Nationwide Building Society, 1 Year Triple ISA 12 Online Access 0.8% £1 Managed online or via app, interest paid on anniversary, transfers allowed
Ecology Building Society, Ecology Cash ISA 0.8% £25 Managed online or by mail, interest paid annually, transfers authorized

Notes: 1 Rate includes a 0.10% bonus for 12 months. Correct as of April 13, 2022.

The Top Five 1-Year Fixed Rate Cash ISAs

Interest rate (AER) Minimum deposit Remarks
Secure Trust Bank, 1 year fixed rate cash ISA 1.4% £1,000 Managed online or by phone, interest paid annually, transfers authorized
Shawbrook Bank, ISA 1 year fixed rate bond issue 59 1.4% £1,000 Managed online or by phone, interest paid on anniversary, transfers authorized
Gatehouse Bank, 1 year fixed term Woodland Cash ISA 1.4% £1,000 Managed online or by phone, interest paid annually, transfers authorized
Tipton & Coseley BS, fixed rate ISA until 31.05.23 1.35% £1,000 Managed in branch, by mail or via app, interest paid annually, ISA cash transfers allowed
Kent Reliance, Cash ISA 1 year fixed rate, issue 53 1.34% £1,000 Managed online, in branch or by mail, interest paid at maturity, transfers authorized

Notes: Correct as of April 13, 2022

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