Understanding exactly what an ISA is and how it works can be a little confusing, and that’s before you start considering questions such as who has the best interest rates, whether you want to invest cash or shares, etc…
Here at ISA Rates we aim to make life a little simpler. We explain how ISAs work, clarify the differences between the different kinds of ISA and help you pick the account best suited to you.
What Is an ISA
An Individual Savings Account, or ISA, is, in effect, you own personal little tax haven. As the name suggests an ISA works much like a savings account, with one crucial difference; the money your savings earn is exempt from tax.
Another key difference is that there is a limit to how much you can invest in an ISA each year. At present you can pay in no more than a total of £10,680 per annum into you ISAs.
Just as with savings accounts interest rates vary between providers and there are different types of account honed towards different needs, such as easy access accounts or those with a fixed rate of interest.
As well as a cash ISA, into which you pay money, you can also have a stocks and shares based ISA, and you’re allowed one of each.
Shares based ISAs are ideal for those who prefer to have the value of their savings tied to the fortunes of the markets than to bank’s interest rates. More details are available on the What Is an ISA? Page.
Cash ISAs: Keeping Things Simple
Whilst ISAs based on stocks and shares can be profitable they are, by their nature, riskier and more complicated than cash ISAs. They take some managing and, if you’re unlucky, it’s not impossible to lose the entire value of your investment.
Cash ISAs on the other hand are very straightforward and completely risk free. You simply pay in as much as you want to invest, sit back and watch the interest accrue, tax free.
Compare Rates to Get the Best Deals
Once you’re ISA is full you’ll have to wait until the new financial year to invest more. As a result many people open ISAs or switch accounts in March and April, a period known as ‘ISA Season’.
This is often the best time to find the best rates as ISA providers compete, not only for new custom, but also to keep their long term savers from moving elsewhere.
Be sure to look carefully into the details of your ISA as there is more to consider than just the interest rate, for example the advertised rate may only apply for a short period of time.