What is a cash ISA?

Cash ISAs are things that you may hear being talked about without being sure what they are. But ISAs are simply savings accounts (Individual Savings Accounts) that offer protection from tax, up to a certain yearly contribution limit that the government set each budget.

What different types are available?

There are a number of different types of ISA available, including cash ISAs and stocks and shares ISAs. ISA stands for Individual Savings Account. They were introduced to encourage people to save.

A stocks and shares ISA offers investors a chance to invest in securities which may grow in value. Generally speaking, if you are able to leave your investment for a long time, stocks and shares investments may be worth a look. However, independent financial advice may be appropriate.

Cash accounts are simply regular savings accounts that attract interest. They may be viewed as more “safe” than shares, although may typically not offer such a high return.

Depending on how the government deals with the rules and regulations each year, investors may be able to split their tax free savings between the two types of ISA, although this is always worth checking out before you place your savings.

Distinguishing between cash ISAs

So how do you distinguish between cash ISAs? You may wish to take into account the:

• interest rates payable;
• periods of notice required to withdraw your money;
• minimum levels of investment required for each type of account;
• whether a minimum balance applies to get a good rate of interest; and
• how you can pay money into the account.

If you assumed that savings accounts were only for the rich, think again. Some ISAs are available to those with opening balances as little as £1.

How ISAs work

When you are choosing which ISA to open, you may wish to check how long the interest rate that has been quoted will continue. For example, some ISAs offer bonus rates, but these only last for a bonus period, after which a more modest interest rate may be paid.

Perhaps the most important thing about cash ISAs is not so much setting one up, but paying money into it. After all, what is the point of having a savings account that remains empty?

Top 5 tips for getting the most out of an online saving account

Are you thinking about getting an online savings account? Read these top 5 tips to help you.

1. Make the most of its online nature. Why not transfer a little bit of cash from your current account every time you check your balance online? If you are doing your banking online anyway, you may wish to get into a regular habit of putting some money aside each month – or just whenever you feel like it.

2. Keep checking the interest rates that you are getting. Unless the interest rate on your online savings account is a guaranteed or bonus rate for a certain length of time, you may wish to consider switching to a different product to get a more attractive rate.

Bonus interest rates do not last forever. When the bonus period has expired and the rate that you are getting has reverted back to the bank or building society’s normal rate, now may be the time to look around for something better.

3. Look at ISAs. Individual Savings Accounts are investment vehicles that offer tax free savings up to a certain limit per year. These accounts are the government’s way of encouraging people to save and prepare financially for the future.

4. Watch your balance. No doubt you are interested in keeping as much as possible in your online savings account so that you can save up for that rainy day. However, another reason to keep an eye on how much is in your savings account is that your interest rate may depend on the amount that you have saved. If your balance dips below the provider’s minimum, you may need to top it up to get the preferential rate that you were expecting.

5. Think about when you need to get to your money. Can you manage without tapping into your savings for a few years, or do you need them as a stand-by just in case you need to get access to some emergency cash? Whilst the highest rates may be available to the accounts that lock away your money for longer periods, you may wish to consider an instant access deal if that means that you borrow less on your credit card to get you by.

Top six tips on getting online savings rates

Are you looking for an online saving account? If so, you may wish to look at the following tips to help you choose the most suitable for your individual needs.

1. Think about how much you have to save. Some online savings rates are only applicable to accounts that have a minimum balance, which may mean that the highest rates may not be available to people who have less than that amount. Likewise, if you withdraw a sum and your balance dips below that amount, you may find that your rate goes down.

Some accounts may also offer certain rates only when the saver deposits a specified amount per month.

2. Consider what you are saving for and when you may need to withdraw your money. Some online saving schemes (such as savings bonds) may require you to lock away your cash for a number of years – others may permit instant access. If your finances are quite precarious, you may wish to choose an online savings account which lets you get your money back when you need it.

3. Be realistic about bonus interest rates. It may be tempting to go for the highest interest rates that your money can earn. However, with bonus rates, alluring as the initial high returns may be, you may wish to asses what the rate will be once the bonus period has expired.

4. Consider an ISA. It can be disheartening to lose the benefit of your savings by having to pay tax on them. Individual Savings Accounts may offer tax free savings solutions up to a certain maximum amount. Ask your provider for details.

5. Think about how you will make deposits. If you are a regular computer user, you may be happy about getting an online saving account that you can only put money into electronically. However, for some people going into a branch and having contact with a “real person” may be important.

6. Finally, after all these other considerations, do not forget that what you are looking for is a return on your money. Accordingly, you may wish to compare the interest rates that are offered by a number of different providers. Not only might you want to compare the annual interest rates that may be offered, but you may also wish to consider how often the bank or building society will pay your interest. Some providers may pay interest annually, others may leave shorter gaps between payments.

ISA’s – Making Use of Your Tax Free Savings Allowance

Most people are vaguely aware of the fact that they can save some money on a tax free basis every year, some would even be able to tell you that it can be done through something called and Individual Savings Account (ISA). It is the case however that relatively few people make use of ISA’s as an investment vehicle.

Part of the reason for this can perhaps be found in the fact that ISA’s are traditionally seen as quite complex and difficult to manage. The UK government tried to address this by overhauling the rules governing ISA’s, with new rules coming into effect in April 2008. The purpose of this short article is to briefly explain how ISA’s work and what the implications of the new ISA rules are for new investors.

Under the ISA scheme an individual can invest up to £7200 per tax year on a tax free basis. There are two way of doing this, they are:

Cash ISA’s: Cash ISA’s are, as the name suggest, simply cash amounts that are saved under the scheme. The most important thing to remember is that there is a contribution limit of £3600 per tax year if you choose to invest in a Cash ISA.

Stocks and Shares ISA’s: With this type of ISA investors invest in the stock market, usually through some form of managed investment fund. The limit for investment is the full £7200 ISA allowance. It should be noted that the amount that you can put in this type of ISA will be directly affected by how much you have already placed in a Cash ISA. If, for example, you invested £2000 in a Cash ISA, you can only invest a further £5200 in a ‘Stocks and Shares ISA.

You can invest your funds in a Cash ISA, in a Stock and Shares ISA, or a combination of both. If you want to make full use of your Cash ISA allowance and also invest your full ISA allowance (£7200) it will of course have to be a combination since there is a £3600 limit on the Cash ISA.

The big question that investors often ask is whether they should go for cash or ‘stocks and shares’.

The main benefits of Cash ISA’s are dependability and security. Placing your money in a Cash ISA is comparable to putting your money in a bank savings account, but with the added benefit that any interest gained will be tax free. It is therefore the perfect place to invest money to earn interest and maximise tax savings while still having relatively easy access to your funds.

Stocks and Shares ISA’s will be invested in the stock market. Any capital gains that you make on your investment will be tax free, but you will have to keep in mind that you are exposing yourself to the ‘ups and downs’ of the market and that your investment could therefore both increase and decrease in value. Stocks ISA’s, in common with other stock market investments, should primarily be seen as a long term investment.

It is relatively easy to take out an ISA since they are offered by many banks, building societies and investment fund managers. As with all financial products you should be careful to read the small print before committing yourself. It is also always a good idea to get independent advice before making major financial decisions.

Summary:

• ISA stand for ‘Individual Savings Account’ and refers to the amount that you can save tax free every year.
• The rules governing ISA’s have recently been simplified, making it much easier to make use of this very important investment channel.
• There are two types of ISA namely ‘Cash ISA’s’ and ‘Stocks and Shares ISA’s’
• Cash ISA’s are ideal for short term financial management while shares ISA’s should be seen as long term investment vehicles.