This April marks the 20th anniversary of the individual savings account (ISA), so we thought what better time to hit refresh, start from the beginning and explain what exactly an ISA is and how your savings could benefit from one.
What is an ISA and why should I open one?
A cash ISA (Individual Savings Account) allows individuals to hold cash without paying tax on the interest that they earn. You must be a UK resident and aged 16 or over to open an ISA.
An ISA operates much like a normal savings account where you are able to pay money in and withdraw money out of them (subject to the allowance as detailed below), unless you opt for a notice or fixed rate ISA. In these circumstances you may need to make your ISA provider aware of your intention to withdraw funds in advance or wait until your account reaches maturity.
You can pay up to £20,000 into a cash ISA each tax year (this allowance cannot be carried over to the following year) and any interest earned on this amount will not be taxed. For example, if you deposited a total of £1,000 into an ISA account at a rate of 1.40%, by the end of the tax year your savings would be worth a total of £1,014. If you had to pay tax on that interest, your savings would be worth less.
When is the best time to open an ISA?
The tax-free allowance which an ISA provides runs from April to April, so opening an ISA as soon after April 6th as possible will give you the most time to utilise the £20,000 allowance during the tax year and make the most of your savings.
How does an ISA affect my Personal Savings Allowance (PSA)?
In short, it doesn’t. ISAs are already tax-free so you are still eligible to enjoy your PSA of £1,000 worth of tax free savings as a basic tax payer, or £500 worth as a higher rate tax payer.
What ISAs do Teachers Building Society offer?
We have four competitive cash ISA
options available right now.
If you have any other questions regarding ISAs or your savings, do not hesitate to give our team a call on 0800 783 2367 or fill out our online enquiry form
and someone will get back to you.