Individual Savings Accounts, or ISAs, have changed dramatically since they were first introduced over 20 years ago. From the only two ISA options in 1999, the cash ISA and Stocks and Shares ISA, there are now various other choices, including Junior ISAs for the under 18s, Lifetime ISAs for 18-39s (£4,000 maximum deposit per tax year), Help to Buy ISA (recently partially replaced by the Lifetime option), and the Innovative Finance ISA (specifically for crowdfunding investors).

The cash ISA used to be considered the best of all traditional savings accounts, but as time has progressed and interest rates are now lower than they have been for many years, ISAs overall are being questioned by some for their efficiency, and indeed if they are still worth considering at all as a savings solution.

Whether you decide to go ahead with a cash ISA or any other savings or investment, it should be considered a long-term investment and included within your wider financial planning. The value of your investments can go up or down, and you cannot rely on past investments as an indicator of future financial security.

Here, I am going to outline the very basics about cash ISAs (without going into too much detail) and the ISA updates for the 2021-2022 tax year, to enable you to make an informed decision yourselves, but please do not hesitate to contact us if you would like more detailed information or wish to proceed with our financial services.

Cash ISAs – the basics

Specific rules around cash ISAs mean you can only save into one of each type per tax year. If you have an existing Help to Buy ISA (which is classed as a Cash ISA) in the 2021-2022 tax year, you won’t be able to pay into any other cash ISA within this tax year. You can however pay into a cash Lifetime ISA and a cash ISA within the same tax year – a Lifetime ISA is classed as a different type of account.

Cash ISAs are an ideal way of saving tax on savings interest. Another consideration is around the current low rates. In fact, Moneyfacts data suggests that average rates for instant access cash ISAs, one-year fixed rate and longer-term fixed rate cash ISAs are at a record low. There’s nothing to say they won’t continue to fall, so investing into a new competitive rate cash ISA now could potentially protect your savings from future drops in interest rates too.

The start of the new tax year on 6th April 2021 brought with it a new tax-free ISA allowance of £20,000.

The Personal Savings Allowance (PSA) sees the basic rate taxpayer able to earn £1,000 on savings/current account interest, with expected lower £500 tax-free entitlement for higher-rate taxpayers, to be used by April 5th, 2022.

Does this all sound a little too complicated?

Please don’t let the complexities and rules and requirements deter you from savings accounts! We are here to explain, ensure you don’t break any of the savings and depositing rules, and to ensure you have the most effective savings and financial planning for your individual needs.

When is the best time to open my ISA?

It goes without saying that the longer an account is earning interest, the more your savings will grow. So, the best advice is to set up as close to the beginning of the new tax year as possible. It’s not too late to open or start depositing into your existing cash ISAs now.

And depositing as much of your allowance at the start of the tax year gives your investment greater opportunity to build up compound interest month on month, throughout the rest of this tax year.

Albeit many view the end of the tax year as a huge opportunity to deposit before the allowance changes again for the start of the next year. It really depends on your circumstances, and when you can afford to deposit larger sums without needing access to those funds.

Again, we are here to guide you around the timing of deposits in order to gain the greatest efficiency from your savings. We will not simply help you set your account up and then leave you to muddle your way through!

How do I choose the best ISA?

We are often asked this question, because as I say, it can be a little complicated, especially if you are new to the world of ISAs, searching for the best rates and returns on your cash ISAs for the first time.

This is where we, at Simpson Financial Services, come into our own.

We know the minimum initial deposit which, for some accounts, is £1,000. Others require a minimum of only £200 to open an ISA. And as our Independent Financial Advisors have access to the entire market, we use the tools and technology to seek out the most appropriate cash ISA for your specific age range, requirements, and individual circumstances.

If I see a ‘better’ ISA, can I transfer my existing ISA?

If you have tried to get a head start and already deposited into a cash ISA since 6th April 2021 but have now seen a better rate and want to transfer to a new account, you may be able to do so, although some providers are more flexible than others and not all cash ISAs allow transfers.

Do not withdraw the funds and then deposit into a new ISA yourself, as this will mean you fall foul of the rule around paying into only one account per tax year and lose the tax-free status. Also, if you withdraw from a Lifetime ISA into another type of ISA, you will also face a penalty.   

This is something our Independent Financial Advisors will discuss with you though to ensure you do not lose out through paying penalties or losing your tax-free entitlement unnecessarily.

How Simpson Financial Services can find the best cash ISAs to suit your needs.

We keep updated with all rate changes, we consistently monitor the markets, and have an eye on savings and investments account performance through our dedicated technology. This means if we see any changes which may impact your financial investments, we are on top of it straight away.

Our expert team can offer regular review meetings (face to face, or via Zoom), so not only do we set you up with the best and most relevant financial advice for your circumstances, but we also maintain contact with you as your savings progress.

If your personal circumstances change, we are ready to deal with these changes to give you optimum access to the best return on investment, advise you from which account you would be best placed to use if you need to make necessary withdrawals, and we can assist you in realigning your financial planning for the future.

In summary then, we feel there is still a benefit in opting for Cash ISAs where they meet your requirements and current financial situation. But no matter which type of savings or investment you are wanting to set up, to ensure we are doing the right thing for you and your loved ones, a financial review is the best next step. Contact one of our team of Independent Financial Advisors today to get your plans in place.