Taking Advantage Of ISA Savings

The launch of ISA in 1999 has brought consumers in the UK a favourable way of savings and investment. Unlike its predecessors Personal Equity Plans (PEP) and Tax-Exempt Special Savings Account (TESSA), this new savings scheme was designed to encourage the low, middle and high class consumers to deposit cash on banks where they will enjoy the interest rate and in turn helping the entire UK economy. An ISA allows savers to build up their funds from a tax-free saving.

Individuals who have ISA don’t always have the same interest rate because these differ depending on the banks. Access to funds also vary since some ISAs have fixed rate and fixed terms where you can’t take out your money until the term ends whereas some ISA polices allow savers to easily access their cash.

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 call for individuals to be 18 at least 18 years old. Moreover, for people who were born before April 5 1960, an amount of £10,200 is their ISA allowance every year and for persons who are born past April 5 1960 has an ISA allowance of £7,200 but these sums is said to go up to £10,200 by April 6 2010.

Why April 5 and 6? April 6 is the start of the tax year and it ends on April 5. Furthermore, be sure to use your ISAs allowance within the tax year or else you will lose it when a new tax year commences.

While the economy is still in a bad state, the Bank of England’s base rate has dropped to a mere 0.5% per year. So shopping around for ISAs will be a wise move on your part so you can decide on which one presents a much higher interest rate. Sadly, the slow economic recovery is further dragging down ISA interest rates to as low as 0.1% per year. To have a clearer picture of how low this rate is, multiply an amount by .001. At present, 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%. ISAs with fixed terms of 5 or more years can provide as much as 4.6% annually and this kind of ISA just like a time deposit. You should carefully think prior to making a large deposit to this kind of ISA because 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 a different 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 existing bank and let them perform the transfer.

To prevent being caught up with lots of ISA applicants, you should open an ISA savings account before the tax year ends. Through 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 avoid the hustle.

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