Cash ISAs remain a popular choice for savers looking to grow their money tax-free. With an annual allowance of £20,000 for the current tax year, these accounts offer a risk-free way to save, unlike stocks and shares ISAs. You can open one cash ISA per tax year, and the limit has been frozen for at least two years.
There are two main types of cash ISAs: instant access and fixed-rate. Instant access allows you to withdraw money at any time, making it ideal for short-term savings. Fixed-rate accounts typically offer higher interest but lock your money away for a set period. Setting up a direct debit on payday can help you save consistently.
The tax year ends on 5 April annually, after which your £20,000 allowance resets on 6 April. You cannot carry over unused allowance, so it's important to use it or lose it. For those under 18, Junior ISAs have a separate allowance of £4,260.
Cash ISAs work alongside the Personal Savings Allowance (PSA), which lets basic rate taxpayers earn up to £1,000 in savings interest tax-free, and higher rate taxpayers up to £500. This means you can also consider non-ISA savings accounts if they offer better rates.
Despite their benefits, cash ISAs currently face two main issues: low interest rates and the frozen allowance. Savers should compare rates and consider their financial goals before choosing an account. For more details, consult a complete guide on picking the right savings account.
