ISAs can be very confusing things. This will hopefully make them much clearer.
** In the Budget today (March 19th), the Chancellor announced ISAs will be replaced by NISAs on July 1st 2014. We’ll update the guide nearer the time, but this is all still true until then, and you have until April 5th to get one for this tax year **
1.What Does It Mean?
It stands for individual savings account.
2. Tax Free Sounds Good
You don’t get taxed on any interest your money earns. That means you’ll get the full rate (eg 2%) unlike in a normal current or savings account where you’d get 20% less interest*.
3. Any Limits?
Yes, there’s a maximum amount a person can put in an ISA (£5,760 a year for 2013/14, £5,940 for 2014/15) .
4. How Many Can I Have?
You can only open one each financial year. This year ends on 5th April 2014.
5. Can I Add To Old Ones?
Once you’ve paid the full amount in, you can’t pay anymore in again that year.
6. What About Next Year?
At the start of each financial year you can pay another allowance into that ISA or open another. You can keep doing this each year. There’s still a cap for each financial year, no matter how many ISAs you have.
7. So They Just Stay Where They Are Until I Use Them?
You can transfer older ISAs to get better interest rates.
8. But I’ll Get Taxed When I Withdraw?
No, withdrawing money doesn’t mean you then get taxed, only that any interest you then earn on it in your bank account will be taxed.
9. Anything Else?
You can also invest money in a Stocks & Shares ISA. You can either put in another £5,760, or double the amount if you don’t have a Cash ISA.
* Based on annual earnings between £10k and £41,865 in 2014/15