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Cash ISAs: How to Choose the Best
 An Isa helps your cash grow
 
What is a cash ISA?A cash ISA (Individual Savings Account) is essentially a tax-free savings account available to any An ISA isn't an investment in itself. It's just a 'wrapper' that protects your savings from tax. Putting money in a cash Isa is just the same as putting money in a building society account or online savings account, but you're wrapping it in a tax-free savings 'bag', so when you get your interest on the money you don't lose any of it in nasty tax payments. Once you put the money in you can take it out again, but you may not be able to put it all back into your ISA in the same tax year. This is because you can only put in money up to the savings limit for that type of ISA (£3,600 for a cash ISA) in any tax year. This rule applies whether the amount paid in is new saving or replacing amounts withdrawn earlier. So - you just get one £3,600, and one go. Once the money is in the ISA, however, you can transfer it directly into another ISA with another company, as long as that company lets you and you don't exceed your annual allowance. Should I get one?As with most things financial, it depends on your personal circumstances. These are the reasons why you might not want to get a cash ISA this financial year:
This financial year (until 5 April) you can put up to £7,200 altogether in ISA-wrapped investments either in two mini ISAs (£3,600 in cash and £4,000 in shares) or in one big maxi shares ISA. In the long term, investments in shares will give usually give you a bigger return. By 'long term' we mean at least five years. So if you're planning to use your ISA allowance to invest for your future, we suggest you put that money into shares. Of course, if you would like to invest in a mix of cash and shares, having a mini cash ISA and a mini shares ISA makes great sense.
This is a great idea, too. Paying off chunks of your mortgage means that you'll be mortgage-free in much less time. You will save loads of money (like tens of thousands of pounds) in interest payments and your gains will be tax-free. When you pay money into your mortgage and save on interest you don't get charged any tax on that saving, because you're paying off a debt. In that sense, it's similar to putting the money into an ISA.
Unless you're being charged 0% interest on your debts, or have a very low interest debt like a student loan, there's no point putting money into any sort of savings account until you've paid your debts off. The money you make in interest on your savings will be more than wiped out by the interest you're paying on your debts. Pay those off first and then you can start putting your extra cash into savings accounts and other investments.
However, the main reasons you should put money into a cash ISA are:
Money in stock market investments can go up and down wildly in the short term and it's possible that they could be down just at the moment you need to access your cash. So - if you find the stock market way too scary but you still want to invest some money, a cash ISA is a pretty decent bet.
How do I get one?Easy. You get it in the same way that you would set up any ordinary savings account: You can now apply for many ISAs online. Alternatively, if you want a postal one or one that can only be taken out over the counter, write to the bank or building society concerned or go to one of their branches and ask to open up the cash ISA you choose. An online cash ISA may be easier to pay into, withdraw from and manage. On the other hand, by making your money accessible only by walking into the branch in person, you’re reducing your chances of dipping into your savings without thinking. You know yourself better than anyone so make an informed decision about how much you trust yourself with the money! Once you’ve opened your cash ISA you can sit back, relax and watch your money multiply. Remember that you can transfer your cash between ISAs (as long as the new ISA you choose allows this). So, keep a close eye on the cash ISA best buy tables and transfer your money as and when you like to take advantage of the top rates. Just remember that some ISA providers may penalise you for withdrawing your cash early.
Best buy cash ISAsBank or building society: First Direct Regular Saver ISA Interest rate: 7.00% - fixed rate for 12 months Minimum deposit: You must pay at least £25 a month into the account via standing order. Access: No withdrawals allowed. What's the catch? This is a good option if you can afford to put money in every month and don't need instant access to your cash. However, you must have a First Direct 1st account. And unless you pay at least £1,500 into this account every month, you'll be charged £10 a month to maintain it.
Bank or building society: Bradford & Bingley BS eISA Issue 4 Interest rate: 6.25% AER - fixed rate for 12 months Minimum deposit: £3,600 Access: No withdrawals or additions allowed. This account is available as both an internet e-ISA or a branch ISA, so choose whichever works best for you. What's the catch? You must be over 18 years old to open the account. You need to be able to put the whole £3,600 in as a lump sum and you won't be able to access the money throughout the term.
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Jasmine & the Moneymagpie team
Moneymagpie Moneypedia
19.11.2008
