Ever since 1999, UK citizens have been provided a more flexible way of savings by means of what is known as an Individual Savings Account (ISA.) Unlike its predecessors Personal Equity Plans (PEP) and Tax-Exempt Special Savings Account (TESSA), the purpose of introducing ISAs was to encourage all classes of UK consumers to deposit money 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 taking a portion of it.
Savers who have ISA don’t always have matching interest rate since these differ depending on the banks. Cash access also vary since some have fixed rate and fixed terms where you won’t be able to gain access to your money ‘til the fixed term ends whereas some ISA polices allow savers to easily access their cash.
The basic types of ISAs are Cash ISA and Stocks and Shares ISAs. A person should be 16 years of age in order to open a Cash ISA while the minimum age to open a Stocks and Shares ISA is 18. Also, for individuals who were born before April 5 1960, an amount of £10,200 is their ISA allowance every year and for people who are born after 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.
What’s with the April 5 and 6 you ask? April 6 is the start of the tax year and it ends on April 5. Furthermore, your ISA allowance should be used before April 5 if not you will lose it when a new tax year begin by April 6.
While the economy is still in a bad state, the base rate of the Bank of England has plunged to a mere 0.5% annually. So shopping around for ISAs will be one of the wisest move on your part so you can decide on which one presents a much higher interest 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. Currently, the highest interest rate you can acquire 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%. A five year fixed term for an ISA can provide as much as 4.6% every year and this form of ISA just like a time deposit. When opening this sort of ISA, be sure that the amount you are going to deposit is a decided amount 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 opt for a balance transfer to another provider that offers a higher rate. But you should not close your account or pull out the funds because that is not how it works. the balance transfer should be completed by your current provider after you coordinated with them.
To save you the trouble of waiting in long lines, don’t wait to open an ISA account at the early possible time. During the end of March and the first week of April, 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 will earn money much sooner and you will also be spared from the rush.