Cash ISA interest - Community Forum (2024)

FAQs

Who pays the best interest on a cash ISA? ›

"For most people with fixed rate cash ISAs, I can't promise everyone, but certainly enough of you very close to the end of it should be ditching them, paying the penalty, and putting them [the money] in somewhere that pays more at the moment."

Normal savings beat cash ISAs for most.

If you won't make this much interest, you won't pay any tax, so should focus on moving your money to the highest interest rate, which is usually in a Top Savings Account.

Junior ISA Loophole

Before April 6, 2024, 16 and 17-year-olds could save up to £29,000 a year in ISAs by using both the Junior ISA and adult cash ISA allowances. But now, only those 18 and older can open cash ISAs. This means 16-year-olds can't access adult cash ISAs anymore, closing that loophole.

The cons of a cash ISA

ISAs have a capped contribution limit of £20,000 per year, limiting how much interest you can accrue. If the interest rate you receive is lower than the rate of inflation, your money will lose value in real terms. ISAs can't be held by two people; they are for individuals only.

Unlike investing, the money you save into a cash Isa can't go down, but if the interest rate being paid to you is less than the rate of inflation, your pot will be losing value. So while you won't technically lose money, you will be able to buy less with those savings as time goes on.

This is why your long-term return with a stocks and shares ISA could be higher than with a cash ISA. This is the first way a stocks and shares ISA differs from a cash ISA. Though, depending on how you choose to invest, it will probably carry greater risk than a cash ISA.

However, savings accounts that pay interest annually typically offer more competitive interest rates because of the effect of compounded interest. In simple terms, rather than being paid out monthly, annual interest can accumulate over the year, potentially leading to higher returns on the sum you've invested.

ISAs are a simple way to grow your money in a tax-efficient manner. You can invest up to £20,000 in your ISA each year, whether it's a cash ISA, an innovative finance ISA, or a stocks and shares ISA, and you can watch your money grow within your tax-free wrapper, including any income you build up.

What are the new rules for cash ISA 2024? ›

1.1 Increase the age for opening cash ISAs from 16 to 18 years old and over. From 6 April 2024 it will not be possible for anyone aged 17 and under to subscribe to more than one cash ISA . This is a mandatory change with transitional arrangements.

You do not pay tax on: interest on cash in an ISA. income or capital gains from investments in an ISA.

The above table shows the difference between types of savings accounts. If you want to protect yourself from paying tax on any interest income, then an ISA may be your best choice. But if you want to frequently add and withdraw money, a general savings account may better suit your needs.

Putting money into an ISA

Every tax year you can save up to £20,000 in one account or split the allowance across multiple accounts.