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A simple guide to Cash ISAs

A lot of people are put off ISAs because they sound so complicated but they’re a simple way to save your money tax free. In fact, the Government have recently reformed ISAs, meaning that not only can you now save more money but they are now simpler than ever.

 

So, what is an ISA and how can you benefit from having one?

An ISA (individual savings account), is a type of savings account that earns interest tax free. Everyone in the UK aged 16 or over, is allowed to save a certain amount of money each year without paying tax on the interest. The amount you’re allowed to save increases each year. This year, the maximum investment into an ISA is £15,240.

Personal Savings Allowance - Why save in an ISA?

The Personal Savings Allowance was launched in April 2016 and gives basic rate tax payers a £1,000 allowance to earn tax free interest in each tax year.  This allowance excludes any interest earned from ISAs. 

ISA's remain an important savings option for many people who want to continue to earn tax free interest on their previous years ISA balances as well as utilising their annual allowance.  Personal Savings Allowance has given people the ability to save even more tax free.

 

Are there different types of ISA?

Yes. There are Cash ISAs and Equity (stocks and shares) ISAs.

An equity ISA is an investment rather than a savings account and this is usually arranged through a financial adviser. Newcastle Building Society do not offer stocks and shares ISAs.

cash ISA is simple – you earn the interest rate advertised on the money you save. Like regular savings accounts you can open different access accounts such as fixed rate, notice accounts and easy access.

How do they work?

ISAs are single holder accounts only. You are not able to open a joint ISA and you are not allowed to open an account on behalf of somebody else.

You can invest up to the ISA limit between 6 April and 5 April each year. If you reach your ISA limit you will need to wait until the beginning of the next tax year before you are able to save any more money tax free.

Can I make withdrawals from an ISA?

Yes. You can always access your funds, but like a regular savings account, each ISA has different restrictions on deposits and withdrawals.

Easy access ISAs are available, but some fixed rate ISAs may impose a penalty or a notice period for any withdrawals you make. You should make sure you check the terms of withdrawals before you open an ISA, especially if you know you will need to access your savings.

If your ISA is a flexible ISA you can move money in and out of it without counting against your tax-free allowance. As long as any money you’ve taken out is replaced within the same tax year, your total ISA allowance for the year is unaffected.

Here at the Newcastle, we’re making most of our cash ISAs flexible*, including existing accounts that we no longer offer to new customers. If you already hold an ISA with us you will notice a change in your terms and conditions.

*Please note that flexibility isn’t available in Junior ISAs or in Help to Buy: ISAs, therefore these accounts remain as standard ISAs.

If you are not saving in a flexible ISA you should remember that if you do make withdrawals from an ISA that your ISA limit remains the same.

For example; you’ve saved £15,000 into a Cash ISA this year and are unable to save any more. You make a withdrawal of £3,000. You have still saved the maximum amount allowed this year and therefore will not be able to reinvest the £3,000 at any point until your ISA limits are renewed.

It is worth noting that if your ISA account pays interest annually, you will still earn tax free interest for money that you have withdrawn for the amount of time it was in the account. (this may be less any penalties depending on the terms and conditions of your account).

If I don’t save all of my limit can I roll it over?

No. Money must be paid into your ISA by 5th April each year for it to count. If you don’t use your full limit it does not defer to the next year, it simply starts again at the new limit.

Can I open more than one ISA account?

The usual rule of ISAs is that you are only able to open one account each year.

You are able to hold separate ISAs for savings from previous tax years or you can transfer all of your previous years allowances into your current ISA, as long as the terms and conditions of your current ISA account allow this.

Newcastle Building Society offers a flexible service which allows you to open more than one ISA account each year. To help you really make the most of your savings, our CustomISA* service means that you are no longer tied to a single ISA each year; you can now split your savings between various Newcastle cash ISA products, so you could put some in a fixed rate cash ISA and some in an easy access one.

You should remember that with the CustomISA* service all of the ISA accounts must be held with Newcastle Building Society.

Here at the Newcastle, we know that things change. Being able to move your money around between products with different levels of access will give you the flexibility to save in a way that works best for you and your life. The real benefit of CustomISA* is that you can take advantage of our best rates while still allowing yourself access to your savings in case you really need it! CustomISA* changes as your life changes.

Visit www.newcastle.co.uk/customisa/ to find out more about this exclusive service, and for more information on the range of ISAs we have to offer.

Can I switch providers?

Yes you can. However there are certain things you will need to remember when switching providers.

Firstly, transferring an ISA is a process which must be dealt with between your providers in order for your savings to remain tax free. Therefore you should never ever withdraw the money yourself to put in your new account.

You will need to complete a transfer form from your new provider, who will sort out the transfer on your behalf.

When transferring an ISA it can be split between current ISA subscriptions and previous years ISA subscriptions. You are not able to split your current Cash ISA between accounts (unless you are taking advantage of the NBS CustomISA) or providers.

I’m a non tax-payer – should I still have an ISA?

If you don’t pay tax on your earnings or savings than you may benefit more from a regular savings account as the interest rates could be slightly higher than an ISA.

However, you should bear in mind that your circumstances may change (especially if you are a student and will likely be earning within a couple of years) and if you become a tax payer, it would be useful to have savings that are already tax free for the future.