What is an ISA?
Many people think ISAs are complicated, but ISAs are simply accounts for your savings that allow you to save tax-free.
There are 4 types of ISA:
• cash ISA;
• stocks and shares ISA;
• innovative finance ISA; and
• lifetime ISA.
The most popular type of ISA are cash ISAs, and we’re on hand to help you understand the financial terms commonly used, and how a cash ISA can be used to help you reach your savings goals.
What is a Cash ISA?
A cash ISA is similar to an ordinary savings account, except the interest you earn is tax-free.
There are two main types of cash ISA, a fixed rate, and variable rate.
– Fixed rate cash ISAs usually offer slightly higher rates than variable rate cash ISAs, but you can’t withdraw your savings before the fixed term is up.
– Variable rate cash ISAs, typically called ‘easy’ or ‘instant access’ cash ISA’s allow you to withdraw your money whenever you like, but the interest rate may increase or decrease at any time.
Who can open an ISA?
To apply for a cash ISA, you must be at least 16 years old and a resident in the UK for tax purposes.
A parent or legal guardian can also open a Junior ISA for a child under 18. But once they are 16 or over, the child can open one themselves.
How much can I pay into an ISA?
● Each tax year (6 April to 5 April the following year) there’s a maximum amount of money you can put into ISAs which is set by the government, this is called the ISA allowance and currently the limit is £20,000.
● The ISA allowance applies to money that you are adding in to a cash ISA each year, so it doesn’t include money that’s already in your cash ISA from previous tax years, funds transferred from another ISA or any money you earn from investments in your ISA.
● You have until 23:59 on 5 April each year to add money to your ISAs, up to the ISA allowance limit. Be aware, if you don’t use your full allowance during the tax year, you won’t be able to carry any over.
What are the benefits of an ISA?
● You can open some ISAs with as little as £1.
● You pay no tax on the interest you earn.
● Your annual allowance renews each tax year.
● Some ISAs are flexible and allow you to make withdrawals and later pay back into the account during the same tax year and not affect your ISA allowance. This only applies to our Cash ISA 3.
● Some ISAs have a fixed rate of interest, meaning you can take comfort know exactly how much interest you will earn.
● You can transfer money from one ISA to another.
I already have a Cash ISA from a previous tax year with another provider, can I transfer this to you?
You can transfer your cash ISA savings to a new provider at any time.
If it’s money you have saved in previous tax years, then it won’t impact your allowance – and you can transfer as much, or as little, as you want.
For instance, you could transfer £15,000 of cash ISA savings from a previous tax year into a new cash ISA and still add up to a further £20,000 in the current tax year.
Any current tax-year contributions must be transferred in full and you’ll have a remaining allowance once the transfer is complete. However, there are a couple of things to bear in mind when transferring your ISA:
1. Firstly, you should never do it by withdrawing the money yourself. Always, speak to your new provider and complete a transfer form. Your new provider will then sort it all out, including contacting your current provider, and moving the money over for you.
2. Secondly, you can only add new savings into one cash ISA in a tax year. This includes existing Help to Buy: ISAs and cash ISA’s held outside of Darlington Building Society.
3. And lastly, you may lose money if you close a fixed rate cash ISA before the end of its term so remember to check this with your existing ISA provider.
Ready to open an ISA?
Explore the ISAs we currently have available here.
If you want to talk about your options, or have questions about an existing ISA, please contact your local branch.
