Cash ISAs

When might a Cash ISA be for you?

A Cash ISA is for you if:

  • you want to earn tax-free interest on your cash savings
  • you’re a UK resident for tax purposes
  • you’re aged 16 or over (Junior ISAs are also available).

How they work

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The overall limit for ISA contributions in the 2021/22 tax year is unchanged at £20,000.

With a Cash ISA:

  • you’ll earn tax-free interest on your savings
  • you can only open one Cash ISA a year, but it is possible to transfer to another Cash ISA or a Stocks and Shares ISA with another provider during the tax year
  • if you withdraw money from your Cash ISA, you don’t reset your annual limit unless you have Flexible ISA (see below). For example, say in one year you saved up to the Cash ISA limit and withdrew £1,000. You can’t top up that £1,000 immediately – you’ll need to wait for the next tax year.
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Cash ISA transfers – the rules

  • If you want to change providers – for example, if you find another ISA that’s offering a better interest rate – you must ask your new provider to carry out the transfer in order to keep your savings tax-free. If you withdraw the money yourself – even if you put the money straight into a new ISA – you’ll lose the tax-free status. The only exception to this is if you have a Flexible ISA (see below). Although your current provider must let you transfer your ISA to a new account, your new provider might not accept ISA transfers. Check before you decide which provider you want to switch to. Your current provider might charge a penalty for transferring. Check for any fees or charges to make sure transferring is still worthwhile.
  • You can transfer your current Cash ISA, as well as your ISAs from previous years. Cash ISAs from previous tax years can be split – with some money going to one provider and the rest to others. However, the full amount you’ve contributed during the current tax year must be transferred to one new provider.
  • If you’ve got a Stocks and Shares ISA, you can also transfer money back into a Cash ISA. You'll have to complete a transfer form with your new Cash ISA provider who will then sort out the transfer for you.
  • A Lifetime ISA pays a government bonus on top of anything you transfer into it up to a maximum of £4,000 a year (2021/22 allowance). You can even transfer the money from a Cash ISA.

Flexible ISAs

Cash ISA providers can offer a flexible facility which will let you withdraw and replace money from your ISA, without reducing your current year allowance, provided it’s done within the same tax year.

This won't reduce your current year's ISA allowance.

Not all Cash ISAs will let you do this, and it’s important to check with your ISA provider that your ISA has this facility. This flexibility isn’t currently available for Junior ISAs or Lifetime ISAs.

What happens to your ISA when you die

Since April 2015, if your husband, wife or civil partner dies you can inherit their ISA savings as a one-off additional ISA allowance.

The value of the allowance is equal to the value of the ISA savings held by your deceased husband, wife or civil partner. It effectively means you’re able to keep these savings as ISAs and therefore tax-free – even if you’ve already used up your own ISA allowance for that tax year.

If there’s no surviving spouse or civil partner (for example, if the inheritance goes straight to children or other relatives), ISA savings pass to the estate but lose their ISA ‘tax wrapper’. ISA savings are also subject to Inheritance Tax under the same rules as the rest of the estate. 

Since April 2018, all ISAs apart from Junior ISAs, can continue to grow in value, tax free, for three years and one day from the date of death. For example, any interest earned after the date of death but before the probate process completes would remain tax free (as long as probate completes within the three-year limit). 

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What to look out for with Cash ISAs

  • Beware of teaser rates that are high for a short period of time before dropping off to a low level. If you find that you’re no longer earning a competitive interest rate, look for a higher rate Cash ISA to transfer into.
  • Many Cash ISAs are instant access accounts paying a variable interest rate. But some Savings Bonds offering a fixed rate over a fixed term can also be Cash ISAs (with your money being paid into an instant access account once the bond matures). Don’t tie your money up unless you can afford to or you might have to pay early withdrawal penalties.
  • Beware of fixed-term Cash ISAs offering very high interest rates. With these products (also known as structured deposits), you’re taking a gamble on the performance of an index or a commodity price. You might get no income or capital growth, and charges might be deducted from your capital. This is because any return on your investment is dependent on one or a number of rules – for example, the FTSE 100 index will have to increase by 5% over a five-year period.

Access to your money

  • With instant access Cash ISAs you can withdraw money when you want to.
  • With fixed-term Cash ISAs, you’ll get your money back at the end of the period you signed up for (‘the term’). Some accounts allow early withdrawals, but there might be a penalty.

Charges on cash ISAs

  • If you withdraw early from a fixed-term account, there might be charges.
  • Your provider might charge penalties and fees if you transfer your Cash ISA to another provider.

Are Cash ISAs safe and secure?

Cash you put into UK authorised banks or building societies– including within a Cash ISA –  is protected by the Financial Services Compensation Scheme (FSCS).

The FSCS savings protection limit is £85,000 (or £170,000 for joint accounts) per authorised firm.

It’s worth noting that some banking brands are part of the same authorised firm.

If you have more than the limit within the same bank or authorised firm, it’s a good idea to move the excess to make sure your money is protected.

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Where to open a Cash ISA

Cash ISAs are available online, through a branch, by post or over the phone, depending on the product and provider.

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What happens if your Cash ISA goes wrong?

Banks and building societies are regulated by the Financial Conduct Authority (FCA).

If you have a complaint, give the business a chance to sort things out first. If you’re still unhappy and your issue isn’t resolved, you can take your complaint to the Financial Ombudsman Service.

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Ready to start saving?

Comparison websites are a good starting point for anyone trying to find a Cash ISA tailored to your needs.

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These websites are good place to start when you’re looking for a Cash ISA:

But be aware that comparison websites won’t all give you the same results  and not all providers will appear on comparison sites. So make sure you use more than one site before deciding.

It’s also important to do some research into the type of product and features you need before making a purchase or changing provider.

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MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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