Since 1999, British citizens have been given a more flexible way of savings by means of what is known as an Individual Savings Account (ISA.) Unlike its predecessors Personal Equity Plans (PEP) and Tax-Exempt Special Savings Account (TESSA), the ISAs objective was to encourage all classes of consumers in the UK to deposit cash on banks where their ISA savings will play a role to the nation’s financial stability. An Individual Savings Account allows savers to build up their funds from a tax-free saving.
ISA interest rates doesn’t have a standard rate because banks or building societies decide how much it should be. Access to the saving’s funds also vary since some ISAs have fixed-term, fixed rate and notice periods where your money should stay where it is upon the end term whereas some ISA polices let savers access their funds hassle-free.
Cash ISAs and Stocks and Shares ISAs are the two main forms of ISA savings. A person should be 16 years of age in order to open a Cash ISA while the minimum age to open a Stocks and Shares ISA is 18. Moreover, for individuals who were born before April 5 1960, an amount of £10,200 is their ISA allowance annually and for persons who are born after April 5 1960 has an ISA allowance of £7,200 but these amounts is said to go up to £10,200 by April 6 2010.
Why April 5 and 6? April 6 is the beginning of the tax year and it finishes on April 5. Furthermore, your ISA allowance should be used before April 5 or else you will lose it by April 6 which is the beginning of a new tax year.
Because of the present economic state, the Bank of England’s base rate has dropped to a mere 0.5% per year. So shopping around for ISAs will be one of the wisest move on your part so you can select between providers that put forward a good rate. Unfortunately, the slow economic recovery is further dragging down ISA interest rates to as low as 0.1% annually. If you have £5,000, you’ll only get £5/year with this sort of rate. Currently, the highest interest rate you can acquire on an ISA is a maximum of 2.75%.
While 2.75% is already considered a high rate, an ISA rate can still go further to more than 4%. An ISA with a minimum fixed term of five years can give as much as 4.6% yearly and this kind of ISA can be compared to time deposits. You should conscientiously think before making a large deposit to this kind of ISA seeing as you won’t be able to have access to it within the term.
If you already have an existing ISA account, other banks that put forward a much higher ISA rate can move your ISA savings to theirs if you do an ISA transfer. But you should not pull out your ISA money and close the account as this will not be carried over to the new provider you want to switch over. What you need to do is let your present provider transfer the account to the new one.
To prevent being caught up with lots of ISA applicants, don’t wait to open an ISA account before the tax year ends. A few weeks before the tax year ends, it has been proven that more people open ISA accounts than other time of the year. If you open an ISA in a much earlier date, you can avoid the rush and you will also earn your interest rate much sooner.