Cash Isas: Features explained
You can put up to £3,600 in a cash Isa in any one tax year
Individual Savings Accounts (Isas) were launched in April 1999 to replace Peps and Tessas.
As of 6 April 2008 there are just two types of Isa: cash and stocks and shares. Before, they had been classified as either mini Isas or maxi Isas.
The amount you can put into an Isa has also changed. The new overall annual limit goes up to £7,200 and the portion of that which can go into cash has increased to £3,600. Previously these limits were £7,000 and £3,000 respectively.
What are cash Isas?
Cash Isas are savings accounts offered by banks, building societies and National Savings & Investments. All the interest paid on these accounts is completely tax-free.
For all taxpayers, a Best Buy cash Isa beats a Best Buy taxable savings account every time. See our Best Buy cash Isas now.
Because cash Isas often have higher interest rates than ordinary savings accounts anyway, even non-taxpayers can benefit from keeping some savings in a cash Isa.
The table below shows how cash Isas shape up when compared to ordinary taxable savings accounts. For higher-rate taxpayers even a 'don't buy' cash Isa with a low interest rate beats the return on a Best Buy taxable savings account.
| ISAs vs Savings accounts | |
|---|---|
| Account | Interest earned on £18,000 in 2007 |
| Best Buy ISA |  £1,116 |
| Don't Buy ISA | £779 |
| Best Buy savings no tax | £1,098 |
| Best Buy savings tax 20% | £878 |
| Best Buy savings tax 40% | £659 |
Cash Isas are risk free, providing the return you receive beats inflation. They're therefore a good place to invest your money if you don't want to consider riskier investment options. However, keep an eye on your interest rate to make sure it's well above inflation and switch your savings if the rate starts to drop.
Many cash Isas are instant or easy-access accounts. But some require you to leave your money invested for a set period or to give notice before you withdraw your money.
Who can have an Isa?
You must be a UK resident (or a Crown employee serving overseas or married to such an employee).
You can take out a cash Isa if you are aged 16 or over. To take out a stocks and shares Isa you must be aged at least 18.