ISAs, short for Individual Savings Accounts, were introduced to the UK in 1999 and are a type of retail investment. ISAs have a very favourable tax status as account holders are not charge interest for withdrawals and no income tax or capital gains tax is applied to their ISA.
Types of ISA
In the UK there are three main types of ISA, each with its own advantages and limitations which need to be taken into account. The most common type of ISA that you will encounter is a cash ISA. These ISAs are typically issued from a high-street bank and are tax-free. Stocks and shares ISAs are another popular type of ISA. These ISAs work in a similar way to cash ISAs, but have stricter rules and there is a genuine risk of losing money. However, in July 2014 the terms and conditions that accompany shares and bonds ISAs will become more relaxed. Finally, another type of ISA that you will encounter is Junior ISAs. These ISAs can be cash or stocks and shares ISAs, however, the conditions that accompany them differ slightly to those that accompany 18+ ISAs. These ISAs typically enjoy better interest rates, however, the amount of money that can be added to the fund each year has a lower limit and the funds cannot be withdrawn until the child reaches the age of 18.
In short, there are three types of ISA:
- Cash ISA
- Stocks and Shares ISA
- Junior ISA (can be Cash or Stocks and Shares)
Fixed or Variable
When choosing your ISA you will need to decide whether you would like an ISA with a fixed or variable rate of interest. Fixed ISAs typically offer you the most attractive rate of interest, however, it is important to take into account that you could be tying up your money for a long period of time. In addition, some providers penalise you if you should wish to take out some money before the end of the fixed period.
Variable rates tend to be more flexible as you are not required to hold you money in an ISA for a set amount of time. However, they tend to sport lower interest rates, especially in recent years! In order to entice custom, there are a number of providers that offer higher rates of interest for a set period of time to new customers. While these offers are certainly attractive, make sure that you know what the interest rate will be once the bonus period expires.
Top Variable Cash ISAs 2017
|Provider||Interest Rates||Minimum Investment||Transfer In|
|Skipton Building Society||1.02%||£1||Yes|
|Hinckley & Rugby||1.20%||£500||No|
|Charter Savings Bank||1.05%||£1000||Yes|
*Rates verified at time of publishing, but may be subject to change