The establishment of ISA in 1999 has brought UK citizens a favourable method of savings and investment. In contrast to the old structure of UK saving scheme (PEP and TESSA), the idea of introducing ISAs was to encourage all classes of UK consumers to deposit funds on banks where they will benefit from the interest rate and in turn helping the entire UK economy. An ISA allows savers to enjoy their savings without having the tax bureau reaching for a piece of it.
Depending on the bank, ISA interest rates differ from the very low to the high. Cash access also vary since some ISAs have a particular notice periods and fixed terms where you won’t be able to access your money ‘til the agreed term ends while some ISA polices let savers access their money hassle-free.
Cash ISAs and Stocks and Shares ISAs are the two basic forms of ISA savings. In order to open a Cash ISA, the individual should be at least 16 years old while the minimum age to open a Stocks and Shares ISA is 18. In addition, for people who were born before April 5 1960, an amount of £10,200 is their ISA allowance yearly and for people who are born past April 5 1960 has an ISA allowance of £7,200 but these amounts is supposed to be raised to £10,200 by April 6 2010.
Why April 5 and 6? It’s because April 5 and 6 are the end and start points of the tax year, respectively. Furthermore, your ISA allowance should be used before April 5 or else you will lose it by April 6 which is the commencement of a new tax year.
Ever since the credit crunch, the base rate of the Bank of England has sunk to just 0.5% per year. So it’s best to shop around for ISAs so you can select among providers that deal a good rate. Unfortunately, the slow economic recovery is making ISA interest rate lower to as low as 0.1%. To have a clearer picture of how low this rate is, multiply an amount by .001. Presently, the highest interest rate you can get on an ISA is a maximum of 2.75%.
Although 2.75% is already considered a high rate, an ISA rate can still go further to more than 4%. An ISA with a fixed term of 5 or more years can grant as much as 4.6% every year and this type of ISA can be compared to time deposits. You should carefully think ahead of making a hefty deposit to this kind of ISA seeing as you won’t be able to have access to it within the term.
If you already have an existing ISA account, you can also transfer it to another bank that offers a higher rate. But you should not pull out your ISA funds and close the account since this will not be passed over to the new provider you want to switch over. Instead, you should coordinate with your current provider and let them complete the transfer.
To save you the inconvenience of waiting in long lines, you should open an ISA savings account at the early possible time. A few weeks before the tax year ends, it has been proven that more people open ISA accounts than other time of the year. If you open an ISA in a much earlier date, you can avoid the rush and you will also earn your interest rate much sooner.
