A Cash ISA is a type of savings account that offers tax-free interest. That means you don’t pay any UK income tax or capital gains tax on the interest you earn – as long as you stick to the rules of the account.
As of 6 April 2024, you need to be aged 18 or over to open a Cash ISA.
Some providers may allow you to open a Cash ISA if you are covered by the transitional arrangements – you need to be 16 or 17 years old as of 5 April 2024. Transitional arrangements are in place until 5 April 2026.
Until you turn 18, you can only subscribe to a single Cash ISA in the tax year and can only transfer current tax year subscriptions in full. There is no obligation for providers to offer these transitional arrangements.
At the beginning of every tax year (6 April), you’ll be given an ISA allowance set by the government. It tells you how much you can save, tax-free, in your ISAs.
The total ISA allowance for the current tax year is £20,000.
You can save up to £20,000 (the full allowance) in a Cash ISA or spread it across other types of ISAs, such as a stocks & shares ISA. However, the maximum you can pay into a Lifetime ISA is £4,000 in each tax year.
ISAs are excluded from your Personal Savings Allowance (PSA) – the total amount of tax-free interest you can earn across all your accounts each year. This is because ISAs are already tax-free.
If you’re aged 18 or over and stay within the annual ISA allowance, there is no limit on the number of ISAs you can open (apart from Lifetime ISAs). They also don’t need to be with the same provider.
ISA providers are not obliged to allow you to pay into multiple ISAs of the same type.
If you are 16 or 17 and covered by the transitional arrangements, you can only subscribe to a single cash ISA in the tax year – until you turn 18 years old.
You can only subscribe to one Lifetime ISA in a tax year.
The main types include:
An instant access Cash ISA (or variable rate Cash ISA) has an interest rate that can go up or down, this may depend on the Bank of England’s base rate and several other factors.
They can sometimes offer a lower rate of interest compared to fixed rate accounts, but you have instant access to your money if you need it – often without paying a charge.
A fixed rate Cash ISA gives you a guaranteed interest rate for a fixed period.
They tend to pay a higher rate of interest than the instant access (easy access) accounts, but you’ll need to lock away your savings for a set period – usually 1, 3, or 5 years – to avoid possible charges.
HSBC UK now offers both instant access and fixed rate Cash ISAs. Eligibility criteria apply.
Transferring an ISA means moving your savings from one ISA account or provider to another – without losing your tax-free status. When and how you to this will depend on the terms and conditions of the account.
People transfer for several reasons, such as looking to gain better returns on their money or merging several ISAs for convenience.
From 6 April 2024, if you are over 18 years of age, you’re able to transfer part of your current year subscriptions. Previously, if you wanted to transfer money paid into an ISA in the current tax year, you had to transfer all of it – this is no longer the case. ISA providers are not obliged to offer you the option to transfer current tax year subscriptions in full.
If you are 16 or 17 and covered by the transitional arrangements – until you turn 18, you must transfer current tax year subscriptions in full.
To transfer a Cash ISA, you need to contact your new ISA provider and use their transfer system. Transfers between Cash ISAs should take no longer than 15 working days.
If you just withdraw the funds, your money will lose its tax-free status, so always check with your provider if you’re unsure.
Also, check if your current provider has any restrictions for transferring ISAs and if there are any fees. You want to make sure transferring your Cash ISA is financially worthwhile.
The value of the tax benefits described depends on individual circumstances. The tax treatment of ISAs could change in the future.
Tax-free means free of liability to UK income tax or capital gains tax.
This article was last updated: 19/06/2024, 07:05
