ISA stands for individual savings account and is a tax-free savings scheme introduced by the government. The benefit over a ‘normal’ savings account is that you don’t pay tax on any interest earned. To check what you will be paying when you are earning use listentotaxman.com.

Anyone over the age of 16 can invest up to £3600 in a cash ISA and anyone aged 18 or over can invest in shares too – allowing them to save £7200 in total.

For students it’s a chance to get smart with your cash, by investing your student loan or interest-free overdraft (if you don’t need it). The interest you will be earning from your ISA will easily outweigh the interest you are being charged by the Student Loans Company, so the difference is yours to spend as you wish.

 

ISA Facts

Money can be withdrawn at any time without losing any benefits from your ISA as a whole. BUT once the money is withdrawn you can’t return it to the account. For example, if you have £2000 in an ISA fund, you have £1600 available to add to the account within the same financial year. But if you were to withdraw £1500 you can still only add in a further £1600 within that financial year.

You are given a new ISA allowance each year and once the money is in your account you can keep it indefinitely. Each tax year your allocation goes back to £0 and you are allowed to invest £3600 in the ISA within the tax year – April to April.

You can only have one cash ISA per year, regardless of provider, but you can have ISA’s with different providers from different years.

Fixed rate cash ISAs are available from many banks, which protect you if interest rates fall. However, they do not offer any benefit if interest rates rise. If you already have an ISA that doesn’t mean that you can’t transfer your money to a different provider within the financial year. Don’t ever withdraw your ISA completely as you will lose the tax benefit which you have built up.

The Top ISAs:

If you are happy to lock your money away for the duration of the investment, then fixed rate accounts are ideal due to the high rate of interest.

Top 1 Year Fixed Interest Rate Savings Accounts:

They often only last for a certain amount of time and once the time period is over, your account will simply be transferred to normal savings account which is likely to give you a lower interest rate. Once the time period has expired remember to look for a more competitive savings account.

Best Regular Savings Account 

Most of the banks give their accounts slightly similar names. It’s easy for them to try and sway a non-savvy consumer on to similar sounding account – make sure you know what specific account you want.

When weighing up different bank accounts make sure you are comparing like with like. If you are only going to be investing a small amount of money in the account, there is no point in relying on a bank's advertising which is showing the interest for balances over £10,000.

Gross Interest Rate: This is the flat interest rate which you will earn from your bank account over the course of the year. For example if you invested £100 in a 10% interest account, you would have £110 after a year’s saving.

Annual Equivalent Rate (AER): This is the compounded interest which will be earned on an account. Money will grow more quickly because interest is gained on each year’s interest in addition to the initial investment. For example, if you invested £100 in a 10% interest account, after the first year you would have £110. After the second year, you would get interest of 10% again on the £100 plus 10% of the £10 interest gained from the previous year. Meaning you would have a total of £121 after two years.