A tax-efficient way to grow your savings
There are lots of excellent cash ISA options available, but the investment deadline is looming large,
Cash Individual Savings Accounts – ISAs – remain popular for good reason. These straightforward taxfree products enable people to save substantial sums. There’s a huge choice available from banks and building societies, they can be opened in minutes, and you get paid interest.
REASONS TO HOLD A CASH ISA
The simplicity of cash ISAs means they’re always worth considering – whether you’re in your late teens or retired. They work in the same way as a normal savings account: you get paid a rate of interest on what you put away.
Then there are the tax-saving benefits. Low interest rates meant taxpayers were unlikely to breach their annual personal savings allowance – which allows them to earn up to £1,000 in interest – for many years.
But higher savings rates in recent years have changed this debate, according to Sarah Coles, head of personal finance at Hargreaves Lansdown. “Anyone with a decent chunk of savings could have a tax bill on their savings. By using an ISA, they can be sure to protect their savings from tax forever.”
KNOW YOUR OPTIONS
Cash ISAs are straightforward, but there are differences. Easy access accounts usually allow savers to get hold of their money whenever they need it. Notice cash ISAs require a certain amount of time – from a few days up to months – between you asking for your money and it being received. Fixed rate cash ISAs often provide more attractive interest rates if you agree to keep it invested for one to five years. When choosing a cash ISA, the interest rate will be crucial, as well as how often you need access to your money, says Coles. “If this is your emergency savings safety net or cash you’ll need in the next year, an easy access account is a sensible option.” If you’re putting away surplus cash, there are more options. Coles adds: “If you have a longer time-horizon, it’s worth considering a fixed rate ISA which guarantees the rate even if the Bank of England starts cutting the base rate.”
DECENT RATES OF INTEREST
Finance expert at Money facts compare. co.uk Rachel Springall points out that there are lots of cash ISAs available offering decent rates of interest. “Savings rates have come down over the past few months, but consumers can still find better returns than at this time last year. ISAs remain an essential way for savers to protect their nest egg from tax.”
Currently, the best easy access cash ISAs offer around 5.1%, whereas you can guarantee a fixed rate of 4.5% rate for the next three years by locking your money away.