IT pays to shop around if you’re thinking about opening an Isa – we explain the best rates currently available.
We’ve also rounded up everything you need to know about how much you can save each year before you start getting taxed.
What is a Cash Isa?
Each tax year, everyone over the age of 16 in the UK gets an Isa (Individual Savings Account) allowance, which lets them save cash tax-free.
This means they can earn interest on their savings in a bank, building society or other financial provider, without any tax deducted.
Savings kept in an Isa will continue to earn interest tax-free until the money is withdrawn from the account.
The maximum amount you can put away for the 2020/21 tax year is £20,000.
Are Cash Isas the only way you can save tax-free?
For many years, Isas were the number one option for savers, as you can shelter your hard-earned cash away from the hands of the tax-man.
But all that changed in April 2016 when the government introduced a big shake-up to something called the Personal Savings Allowance (PSA).
Under the scheme, basic rate taxpayers can now earn £1,000 in interest a year tax-free – in whatever account they’re saving in.
While if you’re a higher-rate taxpayer you earn up to £500 tax-free.
At the time, the government estimated the change meant the vast majority – around 95% of adults – now no longer pay any tax on their savings.
How do you switch Isa provider?
IF you’re in the market for a new, better paying Isa, there’s one thing you shouldn’t do.
Never withdraw money from your Isa account to put it into your new one – if you do it’ll lose its tax free benefits.
Instead you need to follow the simple transfer process.
Make sure that the new account you want to use accepts transfers (not all do) and then fill in the Isa transfer form with the new provider.
It will arrange for your savings to be transferred over, with the process taking no more than 15 working days.
And remember, you can only have one “active” Cash Isa per tax year.
What are the best easy-access Cash Isas?
Experts from Moneyfacts have rounded up which accounts top the best buy tables at the moment.
These easy access accounts mean you can take your money out without having to pay a penalty.
We’ve only included accounts with a minimum deposit of £1,000 or less.
Rate: 1%
Minimum investment: £1
Interest earned on £1,000: £10
Rate: 0.96%
Minimum investment: £1
Interest earned on £1,000: £9.60
Rate: 0.80%
Minimum investment: £1,000
Interest earned on £1,000: £8
What are the best fixed-rate Cash Isas?
If you can afford to tie your money up for a longer period of time, you’ll find better rates of interest with fixed-term accounts.
Remember, with these type of accounts you will still be able to access your money if you need it but you’ll likely have to fork out an expensive penalty to do so.
Make sure you know what you’ll pay if you need to access your money before you sign up.
For these Isa, we’ve included ones with a minimum deposit of £2,000 or less.
Best for one year
Rate: 0.85%
Minimum investment: £1,000
Interest earned on £1,000: £8.50
Best for two years
Rate: 0.95%
Minimum investment: £1,000
Interest earned on £1,000: £19
Best for five years
- UBL UK Five-Year Fixed Rate Cash ISA
Minimum investment: £2,000
Rate: 1.40%
Interest earned on £2,000: £139.95
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We’ve rounded up the nine best children’s savings accounts 2020 from Halifax to Barclays.
The Sun has also looked at the best-paying accounts on the market which will give you the most bang for your buck.
And here are the best personal loans 2020 from Tesco Bank to Santander.
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This post first appeared on thesun.co.uk
