A Guide to ISAs

There are 4 types of ISA:

• Cash ISAs
• Stocks and Shares ISAs
• Innovative Finance ISAs, and
• Lifetime ISAs
• Junior ISA

At Monmouthshire Building Society (MBS) we offer Cash ISAs.

Cash ISAs are a savings account where you don't pay any tax on the interest you earn.

You can start some ISAs with just £1. Cash ISAs can also be 'flexible ISAs'.

Different types of cash ISAs let you access your money in different ways. Here are some examples:

1. Instant access: You can add money or take it out whenever you need to.
2. Limited access: You can only take out money a certain number of times. If you take out more, there could be costs/charges.
3. Fixed rate: You lock away your money for a certain time, and the interest rate stays the same.

You can now have more than one 'active' cash ISA in the same year. This means you can open more than one cash ISA in the same tax year and enjoy tax-free savings on all of them, up to the overall ISA allowance of £20,000. 

You can put up to £20,000 in one cash ISA, or spread the total allowance across multiple cash ISAs.

The tax year runs from 6 April.

As of 6 April 2024, you can now open multiple Cash ISAs during each tax year.

It is also good to know that transfers from ISAs you opened in previous years don't count towards the £20,000 allowance, so you can still make ISA transfers.

That means, even if you opened a cash ISA and added new money to it this tax year, you can still transfer money from older cash ISAs into a different ISA account, as long as you don't add more money to it.

The most money you can put into cash, stocks and shares, and innovative finance ISAs together is £20,000 each year. You can invest this whole amount in cash, stocks and shares, or innovative finance ISAs, or you can mix them up if you like.

If you take some money out of your ISA, sometimes you can put it back in without it affecting how much you can save each year - this is a flexible ISA. 

The personal savings allowance makes sure that all your savings are automatically paid without any taxes.

• If you're a basic 20% rate taxpayer, you can earn up to £1,000 interest in a year, and you won't have to pay any tax on it.
• If you're a higher 40% rate taxpayer, you can earn up to £500 without paying tax (but top 45% taxpayers will always have to pay tax on their savings).

If you find an account that offers a higher interest rate, it might be a good idea to switch to that one. But before you make the switch, make sure the new account allows transfers and check if your current ISA has a charge or penalty for moving your money.

You can transfer your savings from both the current tax year and previous years.

For money from previous years, you can split it between a new cash ISA and an old ISA. 

But if you want to transfer money from the current year's ISA, you have to switch the whole amount.

For example, let's say you put £5,000 in an ISA in this tax year and £3,000 in the previous year. If you want to switch to a different ISA this year, you must transfer the full £5,000 from this year's ISA. However, you could choose to switch only £1,000 from the money you saved in the previous year.

Remember, never close an ISA if you want to switch, as that would mean losing the tax benefit.

Instead, get in touch with your new ISA provider and ask them to arrange the transfer for you.

You can save up to the ISA allowance of £20,000 across multiple cash ISAs from 6 April to the following 5 April. The best part is, all the interest you earn on that money won't have any tax taken away. So, if you deposit £20,000 into one ISA or across multiple on April 6, you can't add any more during that tax year.

If you ever decide to take out some of that £20,000 later on, a flexible ISA allows you to put that money back in the same tax year.

On the other hand, a non-flexible ISA won't let you do this, as every deposit counts as using up your allowance.

For example, let's say you put £1,000 into a non-flexible ISA and then take out £900. Your balance might be £100, but your ISA allowance still goes down by £1,000. So you can only save an extra £19,000 until the limits reset. But with a flexible ISA, you could save an additional £19,900.

This feature helps savers because it means you won't be punished if you need to access your savings.

Remember, you must always replace the money in the same ISA account you took it out from. However, you can withdraw from a flexible cash ISA and put it back into a flexible stocks and shares ISA or a flexible innovative finance ISA.

Whether you need a flexible ISA depends on your personal situation.

The new ISA regulations allow you to open multiple cash ISAs which means you can invest into a flexible ISA and a fixed rate cash ISA. So if you think you'll save the full or almost £20,000 allowance and might withdraw money frequently throughout the tax year, it's worth finding a provider and account that offers this flexibility, or you can partially invest the £20,000 ISA allowance into a flexible ISA which will allow you to access those savings. 

It's important to always check the rules of your particular ISA Terms and Conditions, as all have different terms.