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Cash Isas: need to know
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You can earn top rates of tax-free interest and enjoy easy access to your money with a cash mini Isa.
Here, we look at the basics of cash Isas - how they work, the best accounts to go for, and what questions you must ask when you apply.
The basics
Cash Isas are simply tax-free savings accounts run by banks, building societies and the Government's National Savings scheme.
Providers tend to reserve their top rates for savers in these popular accounts.
How do I know which account suits me?
You can find out which cash Isa best suits your needs with our Isa comparison tool.
The limits
You can put up to £3,000 into a cash mini Isa this tax year (ends 5 April) and pay no tax on your interest. You can put in a further £3,000 each tax year.
If you do not use your allowance each year, you lose it. You cannot carry it forward to next year.
The annual limits apply to the total contribution for the tax year, not the amount you actually have in your account.
So if you deposit £3,000 and then withdraw some money, you cannot put it back into your plan this tax year. If you replace it next tax year, it counts towards your £3,000 limit.
The new rules
The Government is proposing a change in the Isa rules. these should come into force on 5 April 2008.
Different rates
There is a wide disparity between the best and worst rates of interest offered, so make sure the account you go for offers a competitive annual rate of interest.
Keep a sharp eye on your interest rate too - rates are usually variable so can move up and down at any time.
What if my rate falls?
You can switch your plan to another bank, building society or National Savings if your rate becomes uncompetitive.
How do I go about switching?
Some Isas carry a CAT mark - this means that they meet certain Government criteria and are deemed to be 'fair and reasonable' savings vehicles.
To qualify, there must be no fees, you must have access to your money within seven days and the minimum transaction is £10 at most. Switching a CAT marked account should be easy.
What if there's no Cat mark?
Look behind the headline rates on accounts that do not have a CAT mark. You could have to give 90 days' notice to withdraw money or face a £30 fee for switching. If in doubt, ask when you are applying.
Can I invest a cash Isa in shares?
If you open a mini cash Isa, you can only take out a mini stocks and shares Isa, where you are limited to a £3,000 investment rather than £7,000 into a maxi Isa. You cannot take out both a mini and maxi Isa in the same tax year.
Cash Isas at a glance
• Maximum savings £3,000 in this tax year, interest is tax-free
• You can only take out one plan with one provider each tax year
• You do not have to tie your money up to earn tax free interest
• You can switch to a plan run by another organisation if your rate becomes uncompetitive
• A CATmark means there are no charges on the account and you have access to your money within seven days at the outside.
- Best buy cash Isas
- Compare Isas and find the right one for you.
Also: Lump sum v regular saving
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