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Compare different cash ISAs

An ISA is a flexible way to save, and you don’t have to pay tax on your interest. Since ISAs were introduced, the amount you can put in them has grown and you can now stash a lot of savings away. Comparing cash ISAs is a great way to get a better rate. Here’s how to find and compare different cash ISAs. 

What are cash ISAs? 

Cash ISAs are essentially  tax-free savings accounts. They’re much the same as other savings accounts, except for that all-important tax benefit. Everyone has a personal allowance that they can put in an ISA. For the tax year 2020-2021 it’s £20,000. 
 
Different cash ISAs offer  different interest rates and features  – which is why it’s so important to compare cash ISA rates before you choose. 

What types of cash ISA are available? 

There are different types of cash ISA to think about, so it can be hard to find the best cash ISA for you: 

  • Instant access ISAs  let you pay in and take out money whenever you like. However, unless you have a flexible ISA, taking money out will mean that you lose your tax-free allowance on that money 
  • Fixed rate ISAs  offer a fixed interest rate that’s often higher than an instant access ISA, but you have to lock your money away for a set term 
  • Lifetime ISAs are available to anyone aged 18-39, and can be used to buy your first home, or as a savings pot for retirement. These cannot be compared with Compare the Market. 
  • Junior ISAs allow you to save for your child’s future. They must be under 18 and living in the UK (unless you’re a Crown servant or depend on you for care). These come in the form of both cash ISAs and stocks and shares ISAs. Until the child is 16, you are responsible for the account on their behalf. The child cannot withdraw the money saved until they turn 18. These cannot be compared with Compare the Market. 

What should you consider when comparing cash ISAs?

As an investment, you’ll want to make sure that a cash ISA is the right fit for you. Here are some of the most important things to consider when comparing cash ISAs: 
 
Fixed term or instant access 
Fixed-term ISAs usually offer better rates, but require you to lock your money in for a set period, with heavy penalties for withdrawing early. Whereas, instant-access ISAs offer greater flexibility, allowing you to withdraw at any time. However, you won’t get the best ISA rates. 
 
Cash ISA rates 
Once you’ve decided which type of cash ISA you’re investing in, you’ll want to compare the rates available to you. It’s definitely worth using a comparison service like Compare the Market, not only when you’re first opening your ISA as an investment, but to regularly look for better rates elsewhere, as you can transfer your cash ISA as often as you’d like. The best rates are typically found with the longer fixed-term ISAs. 
 
Withdrawal fees 
If you entered a fixed-term cash ISA, with the intention of seeing the term through, but your circumstances changed and you were unable to do so, you’ll be charged a fee to withdraw your money. This may cause you to lose much of your previous earnings, or even eat into your original amounts deposited. Make sure you’re aware of these fees, to avoid any nasty surprises.

Why might you choose a cash ISA? 

Cash ISAs are a reliable way to earn interest on your savings without paying tax. While the introduction of personal savings allowance has meant that you can earn tax-free interest on ordinary savings accounts, this is limited to: 

  • Basic rate tax payers – £1,000 interest per year 
  • Higher rate tax payers – £500 interest per year 
  • Additional rate tax payers – £0 

If you’re earning more than £1,000 in interest each year, and you feel you’re currently paying too much tax on your savings interest, it could be a good idea to shift your money to an ISA. Don't forget, you can maximise both your personal savings allowance and your ISA allowance at the same time, if you can afford it.

What are the pros and cons of cash ISAs?

Choosing to invest your money in a cash ISA has a range of benefits, but it’s not without its drawbacks, too. 
 
Pros:

  • You won’t pay tax on interest earned – this is one of the main reasons people use ISAs. The interest earned on your account is entirely yours to keep, maximising your saving potential.
  • Flexibility when switching – you can transfer your ISA as many times as you’d like, whenever you’d like. This means you can take advantage of competitive rates at any time. You’re also able to switch to a new type of ISA, which offers further investment flexibility.
  • Completely free – while also avoiding any tax on the interest you earn, cash ISAs are completely free, with no monthly charges that you may find on other types of savings or current accounts.
  • No age limits – there’s a type of ISA out there for everyone. This includes no upper age limits for cash ISAs, while anyone under the age of 16 can have a Junior ISA opened in their name. 

Cons:

  • The best returns require longer terms – if you want to take advantage of the best rates, you’ll need to tie your money into longer fixed terms. This means you’ll have less access to your money. Instant-access ISAs offer a suitable alternative, but the rates aren’t as high.
  • Penalties for withdrawing early – if you’re on a fixed-term deal and need to withdraw your money early, you’ll need to pay a heavy fee
  • Deposit limits – cash ISAs have limits on the amount you can invest each year. In 2020, this currently stands at £20,000. This is not a cap per ISA, it is a cap per individual.

Is my money safe in a cash ISA?

In a standard cash ISA, your money is a safe investment with guaranteed earning potential. However, the safety of your money depends on the type of ISA you open. If you invest in a stocks and shares or innovative finance ISA, you’re still subject to the normal risks of investment. If you’d prefer to keep your money as safe as possible, a standard or fixed-term cash ISA is a safer investment. 
 
If your cash ISA provider were to go under, up to £85,000 of your money would be safely covered by the Financial Services Compensation Scheme. If you’re looking to invest more than this amount, it’s best to spread your money across different ISAs or assets. You can only open one ISA per tax year, so keep this in mind if you’re looking to invest large amounts.

What are the alternatives to cash ISAs?

If you’ve decided that you want a  tax-free savings account, there are a number of alternatives to cash ISAs:  
 
Stocks and shares ISAs 
These types of ISA allow you to invest in shares as you normally may, but protects your investment from any tax on any potential profit or income. Stocks and shares ISAs might make you more money in the long run, but, if you’re not so lucky with the stock market, you could make much less (you can’t compare stocks and shares ISAs with us). Depending on the investment performance of a stocks and shares ISA, you might even lose money. 
 
Fixed-rate bonds 
Fixed-rate bonds allow you to invest a large sum for a guaranteed return on investment, over a fixed period. You won’t have access to your funds during this time, which means the best rates are tied to the longest terms, so it’s typically seen as a longer-term investment. However, the returns are guaranteed, making them an attractive option for those with the money to take advantage. 
 
Savings accounts 
While not always offering interest rates as strong as ISAs, standard savings accounts can offer you greater flexibility. By comparing savings accounts, you’ll be able to find the best rates to help your savings grow. 
 
Current accounts 
While you may not think it at first, there are a number of current accounts which offer very competitive levels of interests that can be comparable to some ISAs and savings accounts. If you compare the rates on offer between providers, we can help you find rates which will help boost your savings further. 
 
Premium bonds 
This form of saving isn’t technically a form of saving at all. Premium bonds allow you to invest your money in a monthly scheme. Each £1 bond is treated as an entry, almost like a raffle ticket, with monthly prizes and jackpots won each month. Prizes start from £25, but reach all the way up to £1 million. You must invest a minimum of £25 to be eligible, and can invest a maximum of £50,000 per person. 
 
Earning money through premium bonds is purely through chance, there’s no level of interest, so you’re not guaranteed a return. The more you invest, the more likely you are to win a prize. You can withdraw your investment in part or whole at any time. 
 
Peer-to-peer lending 
Like premium bonds, peer-to-peer lending isn’t really a form of saving either. Peer-to-peer lending allows you to invest your money as a loan to a borrower, who will then repay you with interest. Peer-to-peer loans usually offer higher rates of interest, which make them a potentially lucrative investment, but they come with the risk of any loan, with your return on investment purely the result of your borrower being able to repay their debt. Interest rates vary, with risker borrowers being charged higher rates, making it very much a risk vs. reward form of investment. 
 
In 2016, the Innovative Finance ISA was introduced, which allows you to pay your peer-to-peer interest earnings into an ISA account, which protects it from incurring interest charges.

Can I transfer from one cash ISA to another?

You can transfer your cash ISA savings from one account provider to another at any time, as many times as you’d like. You can also transfer your savings between different types of ISA. This allows you to compare and swap to take advantage of the best ISA rates, or swap to another type of saving. 
 
However, any money that’s been invested for the current year must be transferred in its entirety. Money deposited in previous years can be transferred in part or whole.

How to find the best cash ISA for transfers? 

Transferring your cash ISA is an easy way to boost your interest rate. Many ISAs have an introductory or fixed-term rate, which is usually the best rate, but this can plummet once that period ends. To make the most of your savings, transferring your cash ISA is a great way to make your money work best for you. 
 

To find the right cash ISA for you, comparing the latest available deals is a great place to start. With Compare the Market, you can find and compare cash ISAs in as little as one minute**. You’ll be able to check the interest rates, as well as any balance limitations, to help you find the right deal for you. 
 
**On average it can take less than 1 minute to compare savings accounts through Compare the Market based on data in September 2020.

How to find the best cash ISA rate?

Normally, the longer fixed-rate accounts offer higher ISA rates. These lock in your funds, restricting your access, but reward you with a higher level of interest. 
 
The type of cash ISA you take out may also affect your rate. Fixed-rate cash ISAs typically offer better interest rates than instant-access ISAs, which usually offer the lowest rates. Regular cash ISAs can offer good rates, but often require a minimum monthly deposit in order for you to qualify for the interest rate. 

How to switch ISA provider 

If you already have an ISA and want to switch to a different bank or building society that offers a more competitive rate, simply tell your new bank or building society that you’d like to move to them and they’ll organise the transfer for you. 
 
You can transfer ISAs as often as you’d like, which can make switching, to take advantage of introductory rates, the best option. Transferring is relatively simple, taking no more than 15 working days. If you’re transferring to a different type of ISA, you can expect it to take up to one month. Simply get in touch with your new ISA provider and fill out an ISA transfer form. 
 
Make sure you understand any rules your new provider might have about transfers in. Some of them don't allow transfers at all, while others may expect you to do it as part of the opening process within a strict time limit. You can transfer all, or part of any ISA savings you have built up, if you can find a provider happy to accept the transfer. So you may need to shop around. 
 
Don’t just close your ISA and withdraw your cash to open up a new ISA. If you do this, you’ll lose all the tax efficiency benefits and it will limit how much, if anything, you can pay in. If, for example, you had used your full ISA allowance and then closed the account, you wouldn't be able to open another ISA until the next tax year. If it was less than the full allowance, then you would only be able to save up to the remaining amount. Either way, you would waste some or all your ISA tax-free allowance. 

Frequently asked questions

Can I make withdrawals from a cash ISA?

While you can withdraw money from your cash ISA at any time, it’s not always wise to do so. If you have an instant-access ISA, you have full flexibility with your money and are able to withdraw at any time. However, if you have a fixed-term ISA, you will be charged significant fees for withdrawing your money early. Fixed-term ISAs often offer better rates than instant access ISAs, which makes it a tradeoff for potential earnings vs. flexibility.

What is the difference between a cash ISA and a savings account?

The main difference between cash ISAs and savings accounts is the way they treat the interest you earn. With a cash ISA, the interest you earn is completely protected from being taxed, for as long as you have the account. Whereas, the interest earned with a savings account will still be subject to tax. Depending on your personal circumstances, you can earn up to £1,000 in interest free of charge, but anything beyond that is subject to tax.

How do Help to Buy ISAs work?

The Help to Buy ISA scheme closed on 30 November 2019. From this date, new accounts are no longer available. However, if you have an existing account, or opened one before 30 November 2019, you will still be able to benefit from your Help to Buy ISA until November 2029. 
 
With Help to Buy ISAs no longer available, you might want to consider a Lifetime ISA instead. A Lifetime ISA allows you to save up to £4,000 a year, which is more than the Help to Buy ISA. Lifetime ISAs are separate to cash ISAs, and cannot be compared with Compare the Market. 
 
If you’re saving to buy your first home, you’ll still get a bonus from the government that will boost your savings by 25%. For every £200 you save you'll get a bonus of £50, up to a maximum of £3,000. The maximum amount you can save every month is £200. 
 
If you’re buying with a partner, and they also have an existing Help to Buy ISA, you can combine your savings to help you get on the property ladder. To qualify for the scheme the home you buy must be priced under £250,000 or £450,000 in London. 
 
You need to have saved at least £1,600 to get the bonus. The bonus is paid once it’s certain that the house purchase will go ahead. Your solicitor or conveyancer can help you when it’s time to claim your bonus and close your account. You need to make sure the rules are followed, otherwise you might not be able to claim your bonus. 

What do you need to compare cash ISAs?

You don’t need anything to compare ISAs. But you will need some basic personal details to apply, such as your National Insurance number, address, occupation and any current ISA account details you might want to switch into the new ISA. 
 
A lot of cash ISAs are available to apply for online (we’ll show you how to apply for the options we find for you, whether it’s online, by phone, post or if you must go into a branch). 
 
Also, you may need to meet a minimum deposit. This might be £1 or it might be £1,000 – it depends on the ISA you choose. You can easily see what the minimum and maximum limits you can deposit are in our ISA comparison tables. 

Can I open a cash ISA with bad credit?

Unlike a standard bank account, cash ISAs aren’t categorised as credit products, so you won’t need to pass a credit check to open one. This means you can open a cash ISA, regardless of your credit score.

What are flexible ISAs and how do they work?

Flexible ISAs were launched in April 2016. This type of ISA allows savers to withdraw and replace money without the replacement cash counting towards the annual ISA allowance. While these were uncommon initially, their popularity has grown considerably, with significantly more providers offering this type of ISA.  
  
If you think this is a feature you need, then check that the ISA account you want to open offers it. 

Can I combine multiple old ISAs into one?

You can transfer ISA accounts as many times as you like, whenever you like. This includes combining multiple ISAs into one. ISAs typically lose a huge portion of their earning potential when the introductory rate expires. If you’re sitting on multiple ISAs, and the rate has dropped considerably, you should consider combining your money into a single account. Preferably one with a better rate.

How many ISAs can I have?

You can open as many ISAs as you’d like. However, you’re only able to pay into one ISA each year, which makes holding multiple ISAs potentially less useful. If you hold multiple ISAs, you should consider combining them into one account. However, if the amounts your combining total more than £85,000, this will exceed the limit you will be protected for by the Financial Services Compensation Scheme (FSCS). If you’d like to protect your money further, it’s best to spread amounts beyond this among several accounts.

What happens to your allowance at the end of the year?

Your ISA allowance resets each tax year, allowing you to invest further across your ISA(s) once again. In Tax Year 2020/21, the ISA allowance is £20,000, which can be split across multiple ISAs. If you fail to use your full allowance for the year, this is lost and does not carry over into the new tax year. 

Why compare cash ISAs with Compare the Market?

To find the right ISA rate for you, comparing the available rates allows you to quickly look at your options. The strongest rates don’t necessarily come from the big banks – you might find a great deal with a smaller online provider you’ve never heard of before. 
 
We can help you  compare cash ISAs  from a wide range of providers. You can choose from instant access or fixed rate. We’ll give you all your options at a glance in a simple, clear table for easy comparison and highlight the key features of each ISA available.  

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