How to find the best cash Isa The different types of cash Isa
You must consider your individual circumstances before opening a cash Isa to make sure your chosen account is the best one for your needs. There are three principal types of cash Isa, explained below.
Instant access cash Isas
This type of Isas provides savers with the ability to pay in and withdraw money at any time throughout the tax year.
Some let you pay in and withdraw any amount, while others will place annual limits on your withdrawals, or demand minimum deposits from customers.
One thing to remember is that instant access cash Isas often have variable rates of interest – the price you pay for the luxury of moving cash in and out of your account freely. If interest rates rise, you could see the value of your savings rise, too - but conversely, if interest rates drop, this could negatively affect the return you receive.
Fixed-rate cash Isas
If you’re looking to tie up your savings for a while, you might want to consider a fixed-rate cash Isa. These lock away your money for a set period, usually between one and five years, and in return pay you a higher interest rate. Generally, the longer you tie up your money, the better the interest rate you will receive.
It’s important to note that fixed-rate cash Isas do not allow you to withdraw your money at any time – you forgo the flexibility of easy access to your savings in return for a top rate. So, if you want to access your cash at any point, you may face a penalty, either in the form of a fixed fee or a reduction in your interest rate.
Fixed-rate cash Isas often require a lump sum investment rather than regular savings. If you want to maximise the tax efficiency of your Isa and are able to put a large chunk aside of cash in one go, this is your best option.
Regular savings cash Isas
These cash Isas will pay a fixed rate of interest over a set period – usually a year – on the provision that you make a regular monthly savings contribution.
This monthly deposit is limited to your savings allowance within the Isa. In the 2014/15 tax year, you can contribute a maximum of £495 per month without exceeding your total limit of £5,940.
The overall Isa limit is £11,880, of which £5,940 is the maximum amount you can invest in a cash Isa. However, from 1 July 2014, the overall investment limit for an Isa will be increased to £15,000 a year. The annual limit can be made up of cash, or stocks and shares, or a mixture of both.
Again, it's likely you will not be able to withdraw any of your savings from a regular savings cash ISA, and pay face a penalty if you do so.