Advertisement

The best Isa deals for your cash

Build up your savings in an Isa and it remains tax-free for life, no matter how large the lump sum becomes. Here’s our round-up of the top rates available.

887-pounds-634
Whatever the size of your stash, Isas still make sense

This content is subject to copyright.

The arrival of the personal savings allowance in 2016 led some people to abandon cash Isas. After all, what's the point when you can now earn tax-free interest on a standard savings account? However, this is short-sighted. Cash Isas offer a lot more than just tax-free savings today they are a way to build a sizeable tax-free savings pot over your entire lifetime.

Advertisement - Article continues below

For example if you had saved your cash Isa allowance every year since they were introduced in 1999, you would have £140,000 by now (excluding any interest). No matter how big that pot gets, it will never be liable for income tax (assuming the rules don't change, which would be a very foolhardy move for any government to make). Not only that, but thanks to rule changes made last year, should you die before your spouse, you can pass that tax-free-income-generating pot on to them too.

By contrast, the personal savings allowance only allows a basic-rate taxpayer to earn up to £1,000 a year in interest tax-free, falling to £500 for higher-rate taxpayers and with no allowance for additional-rate payers. So, outside an Isa, you could face a tax bill in future if your income-tax bracket changes or your pot grows large enough to earn returns above the allowance (as the hypothetical pot above certainly is).

The cash Isa family

So cash Isas should still form a core part of your savings plan but which ones should you use? The Isa family has expanded a great deal in recent years and you now have a whole variety of accounts to choose from. If you are over 18 and not saving for anything in particular, then you need a standard cash Isa.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

You can save up to £20,000 a year into one provided you aren't also saving into any other form of Isa and you can access the money whenever you want to, depending on what type of account you go for.

If you need instant access then Leeds Building Society has a cash Isa paying 1.21%. For 95 days' notice, Charter Bank offers 1.31%. Also, if you are getting an instant-access account, check whether it is a flexible Isa. These allow you to withdraw money and repay it within the same tax year without it affecting your allowance. So, if you had deposited £10,000 in your cash Isa then withdrew £5,000 you could pay up to £15,000 back in before the end of the tax year. Not all cash Isas are flexible so check before you withdraw.

If you are prepared to lock up your money for longer, you can get a rate of 1.7% over two years from Al Rayan Bank, or 2.25% over five years from Charter Bank. But if you are under 40 and saving for your first house, or won't need the money until you are 60, you could opt for a lifetime Isa (Lisa). These allow you to pay in up to £4,000 a year, then at the end of the year the government will add a 25% top-up. At present, only the Skipton Building Society offers them, and it pays just 0.75% interest. When you are saving over the long term like this, an investment Lisa maybe a better option.

Advertisement - Article continues below

Children also have their own Isas: the under-16s can pay up to £4,128 a year (rising to £4,260 from 6 April) into a junior Isa (Jisa) but the money can't be accessed until they turn 18. The best rate on a cash Jisa at present is 3.5% from Coventry Building Society. But again, if they are going to be saving for the longer term, an investment Jisa may be best.

How to transfer your cash Isa

Don't forget to check the interest rate you're getting on existing Isas. If you can get a better rate elsewhere, you should transfer your money. You need to follow the transfer rules when moving money in order for it to retain its tax-free status. If you simply withdraw it and pay it into another account, then it will count as part of this year's Isa allowance so don't.

Instead, first check that the account you want to move to accepts transfers from other Isas. Then ask your new provider to transfer the money from your old Isa. The Leeds Building Society instant-access account paying 1.21% accepts transfers. If you don't need instant access, Paragon Bank has a two-year fixed-rate Isa paying 1.67% that allows transfers.

Advertisement
Advertisement

Recommended

Visit/517999/beware-of-cash-isa-scams
Personal finance

Beware of cash Isa scams

Fraudsters have been targeting savers by offering unrealistically high interest rates on cash Isas.
19 Nov 2019
Visit/485132/ifisa-table
Alternative finance

Innovative Finance Isas available to invest in now

Innovative Finance Isas have been around since April 2016, but are only now becoming widely available. Here, we present a comprehensive list of IFIsas…
5 Mar 2020
Visit/516335/child-trust-funds-where-is-your-childs-cash
Personal finance

Child Trust Funds: where is your child’s cash?

Your offspring may have a child trust fund tucked away. If so, their money is being consumed by fees
15 Oct 2019

Most Popular

Visit/economy/uk-economy/601427/covid-bounce-back-loans-and-inflation
UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020
Visit/investments/commodities/601433/commodities-possibly-the-biggest-opportunity-in-todays-markets
Commodities

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020
Visit/investments/commodities/gold/601444/these-seven-charts-show-exactly-why-you-must-own-gold-today
Gold

These seven charts show exactly why you must own gold today

Covid-19 is accelerating many trends that were already in existence. The rising gold price is one such trend. These seven charts, says Dominic Frisby,…
3 Jun 2020