Cash ISAs

There are two types of ISAs (or individual savings account) - cash ISAs and stocks & shares ISAs. Both are designed as tax-efficient ways to save money.

The interest earned on savings in cash ISAs are not taxed. Stocks and shares ISAs, which are also tax free, are an investment product, rather than a savings product and are linked to the stock market where the same basic rules of investment apply. Because of the tax efficiencies there are strict limits on what you can pay into an ISA each year.

Cash ISAs can take many forms. Most are easy or instant-access accounts but occasionally the rate is fixed.

Top tips

  • While it may seem that a cash ISA is not offering as good a rate of interest as some savings accounts, when you compare the gross rate (before tax) with the net rate (after tax) of interest, you may find you'll earn more.
  • Keep an eye on interest rates and if you decide to switch most providers will do this for you automatically. However, not all ISA providers will accept transfers so make sure you check.
  • If you're a taxpayer, try to make use of your annual ISA tax-free allowance.
  • Try not to touch the money you've saved in your ISA. Once you have used your full allowance, you can't replace any cash withdrawn until the next tax year.

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