Cash ISAs
Friday 19 March 2010
Want to save some money? A cash ISA could be just what you need.
Why do I need to save?
It’s always a good idea to put some money aside for a rainy day – you never know when one will come along.
Saving will also help you afford the things you like, like that new games console, or those trainers that everybody has been talking about, or maybe the wheels that you’ve wanted for so long. By saving some extra cash here and there you can help secure your financial future.
Individual Savings Account
What is a cash ISA?
An Individual Savings Account (ISA) is a tax-free savings account. This means it doesn’t tax the interest that is accumulated from your savings.
Interest gained on normal savings accounts is taxed at different rates depending on how much you earn - 10 per cent (savings rate), 20 per cent (basic rate) or 40 per cent (if you earn more than £37,400). However, since cash ISAs don’t tax you on interest, you get to keep the percentage that would normally have been taxed. Find out about income tax rates here.
Right now, you can deposit a total of £3,600 in one tax year. This will increase to £5,100 from April 2010.
Can I apply for a cash ISA?
If you are over 16 years old and live in the UK then you can apply for a cash ISA. Make an appointment with your local bank to see what it has to offer. Don’t sign up to anything straight away though! Try to bank-hop through your high street to make sure you get the best deal.
You could also check out your local supermarket – it may offer a cash ISA too.
Myths and legends
You will lose your tax-free benefits if you withdraw money
It depends on your account. Many cash ISAs allow you to access and withdraw your money whenever you need it - without taking away your tax-free benefits. Some ISAs however, impose penalties for withdrawing cash. The best way to avoid any unwanted charges is to read the small print.
I have to deposit a fixed amount every month
Most ISAs let you pay money into your account whenever you want – which is cool if you never know how much money you will have to spare. Other accounts require you to deposit the full amount in one go. They could also have other restrictions that might not suit you.
It takes forever to earn any tax-free interest
Not always. If you do your research you’ll find a cash ISA with a good interest rate, meaning you’ll definitely notice the benefits. Visit moneysupermarket.com and other comparison sites to check out different rates.
Other ways to save
Don't want to open another bank account? There are loads of other ways to save.
Your wallet will feel heavier right away if you cut down on a few luxuries. Try not to use your mobile phone too much or search around for a phone deal that gives you the right amount of minutes and texts at a reasonable price. You could also spend less when you’re out with your mates or when you’re shopping.
A budget plan always helps. One of the best ways to do this is to figure out how much you spend in the first place. Jot down everything you spend in one day, then add it up. Is the total reasonable? Is there something on the list you could avoid? Find out more.
