A Cash Individual Savings Account (Cash ISA) has all the basic features and even works like your regular savings account, safe for the fact that the interests accrued from the accounts made here are tax exempt.
It seeks to widen the tax-free income net of £1,000 granted to basic rate and £500 given to higher rate taxpayers while introducing the tax-free concepts to the additional rate taxpayers who don’t enjoy any tax breaks on their incomes. Cash ISAs are offered by accredited institutions regulated by the Financial Conduct Authority (FCA) whose deposits are insured by the Financial Services Compensation Service (FSCS).
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Why open a Cash ISA?
- Higher interest compared to conventional saving accounts: You stand to reap more returns when you operate a Cash ISA than you would when opening such other savings accounts as the personal accounts offered by major commercial banks and building societies.
- Less risky: Unlike the shares and stocks ISA or the Peer to peer lending ISA that invest your deposits into third-party ventures, money held in a cash ISA are shielded from the risks or market volatilities and default on loan payments.
- Ease of access: Deposits into a variable Cash ISA are accessible instantly. This is unlike of the deposits held in other types of ISAs like the P2P lending ISA or stock ISAs where liquidation takes time or virtually impossible, especially where a P2P lender doesn’t have a secondary market for the investments.
- FSCS protection: Cash ISA deposit-taking companies must be FCA regulated and their funds protected by the FSCS. This implies that even if your Cash ISA provider went under, FSCS will reimburse you up to £85,000 for funded accounts held with an accredited company.
- Tax-free: The maximum tax break you can ever have is the £1,000 for a basic rate taxpayer. If you hold large cash deposits in different accounts that consistently earn you over £1,000 interest per annum, you are better off savings your cash in the tax-free Cash ISA, regardless of your tax bracket classification.
What types of Cash ISA can I invest in? There are two types of Cash ISA, the Variable rate Cash ISAs (instant or easy access cash ISA) are the most flexible ISAs. As the name suggests, the interest rates offered by the account are variable, but you have instant access to your funds implying that you can withdraw at any time without having to first notify your ISA provider. Fixed rate cash ISA, on the other hand, refers to cash deposited that earn a fixed interest rate. The amounts deposited here are however locked for a specific period of time, two, three or five years, and initiating a withdrawal request attracts such penalties as the loss of interest.
What are the pros and cons of depositing into a Cash ISA?
- No age restrictions
- Unrestricted access in the case of emergencies
- Easy to register and manage online
- Doesn’t require special skills and doesn’t expose your deposits to risks
- Highly flexible transfers between different Cash ISA providers
- Penalties on premature withdrawals with a fixed rate Cash ISA
- Incredibly low costs when compared to P2P and Shares & Stocks ISAs
- Money stands to lose purchasing value over time when interest rates fall below the inflation rate
Criteria used to rank the top ten Cash ISA
Some of the factors that we took into consideration when vetting the different Cash ISA providers and coming up with the best nine include:
- The annual rate of return
- Ease of access to deposited funds
- Minimum initial deposit
- Regulation and protection
- The time limit for fixed rate ISAs
- Offers, bonuses, and promotions
- Withdrawal penalties
Top 10 Cash ISA Rates for 2019
Easy Access ISAs
What if you were able to deposit cash into a tax-free savings account, earn higher than average interest rates, and still have access to all or a portion of it whenever you wanted? That is what most easy access ISAs, also referred to instant access cash ISAs, are all about. They give you the chance to take advantage of your annual tax-free ISA allowance of £20,000 without having to lock it in a fixed deposit or lifetime savings accounts that are dogged by complicated withdrawal or cancellation processes.
While most of the Easy Access ISAs tend to bring in slim returns when compared to their fixed rate counterparts, they cover up for this with their unmatched flexibility. You don’t have to issue a 30-day capital withdrawal notice to your ISA provider. And never will they cut back on the interest earned on deposits should you decide to close the account or transfer your funds to another provider. But why do you need to deposit into an easy access ISA and what are best options currently available:
Why should you deposit into an easy access ISA?
- No unnecessary account restrictions: You don’t need to notify the deposit taker before making a withdrawal or have a maximum amount of funds that you can withdraw from your savings per day. And neither do you have to keep worrying about losing interest when you withdraw your accumulated deposits if you operate easy access ISA.
- Bonus if you don’t withdraw cash: The interest rate for most of the easy access ISAs may be variable but most providers are willing to give you a fixed rate bonus if you don’t make significant withdrawals for a specified period of time, usually 12 months.
- Can withdraw and replace without counting towards your tax-free limit: For the financial year 2019/2020, you can deposit a maximum of £20,000 into an easy access ISA. Refunding money into a previously withdrawn easy access ISA doesn’t, however, count against your allowable limit. This implies that you can withdraw the £20,000 and replace it later without losing the tax-free wrapper.
- Instant access to funds: The easy access ISA ensures that you have instant access to your money whenever you need it.
- Tax-free income: Interest earned on the conventional savings accounts maintained by the banking industry is taxed as ordinary income. Returns from ISA easy access savings accounts are on the other hand wholly tax-exempt.
What are the merits and disadvantages of saving cash in an easy access ISA?
- Lowest minimum operating balances
- Tax-free benefit ensures you get to take home more than you would with a conventional savings account
- Most versatile as it can be quickly converted into virtually any other type of ISA
- You can make withdrawals whenever you want
- There is no lock-in period and deposits start earning interest immediately
- Your deposits are protected by the FSCS
- Most don’t have a fixed interest rate and it keeps fluctuating
- The easy access to cash raises your temptation to spend
- Some easy access ISA providers will lower your interest if you treat it like a current account
- Low interest and no lock-in periods demotivate your need for committing to a savings plan
Criteria used to rank the best performing easy access ISA providers
There is more to easy access ISAs than just instant withdrawals and attractive annual interest rates. And our vetting process takes into consideration every aspect of the account that affects not just how much you make but its flexibility and how easy it is to interact with. Here are some of the factors that we prioritized when coming with this list include:
- Interest rate
- Bonuses offer and promotions
- Versatility in the account opening and management
- Withdrawal terms and conditions
- The ISA provider’s reputation
- Support for transfers in and out
- Support for switching from and to other types of ISAs
- FCA regulation and FSCS protection
Best Easy access ISAs:
There is countless number of easy access cash ISAs currently available in the money markets and each has its unique feature be it the high interest, unrestricted access to funds or flexibility. Finding the best instant access account to deposit your savings starts with identifying your priorities and matching them to a particular account. For instance, if you are looking for highest interest for a short term savings account, consider going after ISA providers that offer 12- or 16-month fixed rate bonuses. If on the other hand, you look forward to saving for a longer term, consider going after ISA providers that allow for additional deposits into these accounts.
Who can open cash ISA?
A United Kingdom resident above 16 years of age is eligible to open a tax free cash ISA. However, Cash ISA providers have the right to express discretion when admitting clients and some will only approve membership of individuals above 18 years.
Where can I open cash ISA?
The financial conduct authority (FCA) is charged with the mandate of regulating financial services providers and also maintains a list of all the accredited institutions allowed to offer ISA services. These include commercial banks, building societies, online financial services providers, and even the post office.
How can I withdraw /transfer funds from cash ISA?
The Cash ISA withdrawal process is largely dependent on the type of cash ISA. Withdrawing from an easy access cash ISA is pretty straightforward and can be done at any time without even informing the ISA provider. If the ISA provider requires written notice before capital withdrawal, they will disclose this at the time of opening the account, thus the birth of the 60- and 180-day notice cash ISA. Withdrawing from a fixed rate account is however more complicated. Intention to withdraw or transfer funds from an active account must be made in writing to the ISA provider. Some will then charge a pre-determined holding fee or deny you one-year interest rates for the amounts withdrawn. In such a case, you stand to get less than your deposit should you withdraw or request a transfer before the account's first anniversary.
How much can I deposit into cash ISA?
You can invest up to £20,000 tax-free into one cash ISA in one financial year. The Cash ISA provider, however, can express their discretion in determining the maximum operating balance allowable in the account. Keep in mind that the FSCS will only reimburse up to £85,000 should the provider go under.
Do I have to pay to open a Cash ISA?
No, opening cash ISA is free. The service provider, however, has the right to express their discretion when determining the minimum initial deposit required.
Can I open multiple cash ISAs?
Yes, you can open several Cash ISAs with different service providers but only deposit into one in any given financial year.
Can I switch from cash to stock and shares ISA?
Yes, you can easily switch from cash ISA to a shares and stocks ISA and vice versa. If your current Cash ISA provider doesn’t offer shares and stocks trading services or just don’t like their average returns, you can request a transfer of your funds to your preferred shares and stocks ISA provider.
How safe is the Cash ISA?
Before signing up with a Cash ISA provider, ensure that they are registered and regulated by the Financial Conduct Authority (FCA). This effectively means that their services are protected by the Financial Services Compensation Service (FSCS) and thus safe. Should the cash ISA provider go bankrupt or experience challenges that inhibit its operations, the FSCS is charged with the responsibility of refunding customer resources. In case of bankruptcy and misappropriation, your Cash ISA deposits are insured to a tune of £85,000 per ISA provider account.
What is an easy access ISA?
An easy access ISA is a type of cash account that lets you deposit up to £20,000 annually into a savings and earn tax-free interest while giving you the freedom of unrestricted and unregulated withdrawals. Unlike its fixed rate counterpart that locks your deposits for a specific period of time, the easy access makes it possible to withdraw as much as you want whenever you want without notifying your ISA provider.
Will I lose interest or be penalized for withdrawals?
You don’t have to issue a 30-day cash withdrawal notice to your ISA provider when operating an easy access ISA. You can withdraw as much as you want from the account without the fear of being subjected to such penalties as loss of interest.
Do I have to pay to open an Easy access ISA?
Opening an easy access ISA account is free across the board and no deposit taker should charge for account opening or charge a maintenance fee. Most will, however, demand that you commit to the account with predefined initial deposit amount immediately or within a few days of opening the account. The ISA provider has the right to express their discretion when determining the minimum allowable initial; deposit on their platforms.
How much can I save into an easy access ISA?
During the financial year 2019/2020, you can only save as much as £20,000 into an easy access ISA. There is no limit to the amount of money you can transfer into the easy access ISA drawn from other ISAs. You might, however, want to consider checking the maximum operating balance allowed by your ISA provider before initiating a funds transfer request with your current ISA deposit taker.
How safe are my deposits in the easy cash ISA?
Most of the ISA providers have been vetted, approved, and are regularly monitored by the Financial Conduct Authority (FCA). Your deposits with these financial services providers are also insured to a maximum of £85,000 by the Financial Services Compensations Scheme (FSCS).
Can I switch from easy access can ISA to fixed rate or shares and stocks ISA?
Yes, the easy access is considered one of the most versatile individual Savings Accounts (ISAs) and can be easily converted to fixed rate ISA, Shares and stocks ISA or the lifetime ISA.
How will I know when the interest rate on my easy access ISA changes?
The interest rate awarded to most easy access ISAs is variable and bound to change in relation to changes in the economy. Most ISA providers appreciate this fact and devoted a section in their terms and conditions to explain the different factors necessitating an interest rate change and how it is effected as well as how the provider communicates such changes with the clients.
Is there a time limit for easy cash ISA?
No, unlike the fixed rate ISAs that have their deposits locked for a number of years or months, there is no time limit to how long cash can be held in an easy access ISA. Most deposit takers will, however, attempt to encourage the holding of funds for a significant period by offering bonuses for cash held in an account for a long period.