Ever since 1999, British consumers have been given a more flexible system of savings over what is known as an Individual Savings Account (ISA.) Distinct to its predecessors Personal Equity Plans (PEP) and Tax-Exempt Special Savings Account (TESSA), ISA was designed to encourage the low, middle and high class consumers to deposit cash on banks where they will benefit from the interest rate and in turn helping the overall UK economy. An Individual Savings Account allows savers to obtain money tax free.
ISA interest rates doesn’t have a standard rate because banks or building societies decide how much it should be. Access to cash also vary since some have fixed rate and fixed terms where your money should stay where it is upon the end term whereas some ISA polices offer savers an easy access to their money.
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 opening a Stocks and Shares ISA will require individuals to be 18 at least 18 years old. Also, for individuals who were born before April 5 1960, an amount of £10,200 is their ISA allowance annually and for persons who are born after April 5 1960 has an ISA allowance of £7,200 but these amounts is supposed to go up to £10,200 by April 6 2010.
What’s with the April 5 and 6 you ask? April 6 is the beginning of the tax year and it finishes on April 5. Furthermore, it is suggested that you use the allowance you obtain from your ISA prior to theending of the tax year otherwise you will lose it by April 6 which is the beginning of a new tax year.
Since the credit crunch, the Bank of England’s base rate has dropped to a mere 0.5% annually. So ISA shopping is one of the best move you can do so you can decide on which one presents a much higher interest rate. Sadly, 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. At present, the highest interest rate you can acquire on an ISA is a maximum of 2.75%.
Other ISA arrangements can even offer higher annual rates of greater than 3%. An ISA with a fixed term of 5 or more years can give as much as 4.6% yearly 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 because you won’t be able to have access to it within the term.
If you already have an ISA account, you can also opt for a balance transfer to another provider that presents 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. What you need to do is let your existing provider transfer the account to the new one.
To save you the inconvenience of waiting in long lines, don’t wait to open an ISA account at the early possible time. Between March to 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 avoid the hustle.