Top Cash ISAs 2018/19

Here's a list of the most common queries. If you've got a question we've not answered below, in the text above or in Martin's ISA video below, suggest a question in the forum.

Moving your ISA

• I've got several ISAs from previous years – can I put them all into one?

  Absolutely. Consolidating them into one makes it easier to keep on top of rates and boost to transfer again when they drop.

• If I open and pay in to an ISA in the current tax year, then the rate drops, can I move it?

  Yes, and you should. You can transfer ISA cash anytime, but if it's a 2018/19 ISA – one you've paid in to this tax year – you must move the whole amount and close the ISA completely.

  With transfers of previous years' ISAs you can split this cash across different accounts. See ISA transfers for full info.

• Can I transfer my ISA to someone else?

  No, unfortunately not. You can withdraw the cash and give it to someone else but once money is taken out of an ISA, it loses its tax-free status – unless interest is then covered by your (or their) personal savings allowance.

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  Using and accessing your ISA

• Can I open a joint ISA with my partner?

  Quite simply, no – there's no such thing. ISA stands for 'Individual Savings Account' so you cannot have a joint one. You get one ISA allowance each and that's it.

• What happens to a cash ISA if the holder has passed away?

  If you're married or in a civil partnership, if your partner dies you can inherit a one-off extra ISA allowance on top of the annual £20,000, up to the total amount they had saved in ISAs. These are known as 'additional permitted subscriptions' (APS).

  You have a few choices. You can simply keep the ISA with the same provider, move it to a different provider that accepts APS (not all do), or the ISA goes to someone else but you get the extra allowance. To claim your allowance, you'll need to give your partner's full name, address, date of birth and date of death, your marriage/civil partnership certificate and their national insurance number if you know it. Some providers may also require a copy of their death certificate.

  The allowance you'll inherit will depend on when your partner died:

  • Before 6 April 2018. You'll inherit an allowance equivalent to the total value of your partner's ISAs at the date of death.
  • On or after 6 April 2018. You'll inherit an allowance equivalent to the total value of the ISAs at the completion of their estate, when their ISAs are closed, or at the third anniversary of their death, whichever is earliest – so any growth in value will be taken into account.

  The inherited allowance is available to make use of for three years after your partner has passed away, or 180 days after the completion of their estate, whichever is later.

  Note that inheriting the allowance is not the same as inheriting the cash in the ISA – your partner could, for example, leave some or all of their ISA money to someone else. You'd still get the extra allowance but would have to fund it with your own savings.

  If you're not married or in a civil partnership you won't inherit any extra allowance.

• Will I get any interest if I haven't had money in the account for a full year?

  Interest is calculated daily so what you're actually paid is based on how much you've had in the account when it's payable.

  If you've only had the full allowance (£20,000) in there for a month, you'll get a month's worth of interest on it. See our interest rates guide for a full explanation.

• If I take money out of my ISA, do I then pay tax on it at my usual rate?

  The amount you take out won't be taxed but you could taxed on any interest earned once the savings are outside the wrapper if the interest takes you over your personal savings allowance.

• Should I use my ISA allowance for cash or stocks & shares?

  This is all about whether you gain more from putting savings into an ISA or using your ISA allowance for investing.
  
  The gain from putting cash into an ISA is simple: you never get taxed on the interest. But with investing, whether you actually gain from putting it in an ISA depends on your circumstances.

  • Are you eligible for capital gains? Stocks & shares ISAs exempt you from capital gains tax (a tax on profits which you only pay when you sell your investments). Yet for 2018/2019 you can make £11,700 a year of profits before being hit by this tax, so this protection only helps those who are selling sizeable assets within one tax year, otherwise it's irrelevant.
  • Will you put money into bonds? If you're investing in bonds such as corporate bonds or gilts (Government bonds), then you get the income without it being taxed in any case. For other bonds, a stocks & shares ISA will shelter the income from tax.
  • Will you get an income? If you receive dividend income, you pay no tax on the first £2,000 earned. Anything over that is taxed at 7.5% for basic, 32.5% for higher, and a whopping 38.1% for additional-rate taxpayers. Within a stocks & shares ISA you pay no tax on dividend income, regardless of your tax status. So if you earn more than your allowance, it can represent a significant saving.

  If you're a basic-rate taxpayer you'd need to do a comparison between the amount of tax you'd get charged on savings outside a cash ISA and the amount of tax on any investments held outside a stocks & shares ISA. If you're unsure you could always stick to the previous ISA situation where you could only split the between cash and investments 50/50.

  Small investors who won't use their capital gains and are putting cash in shares investments will gain more using their cash ISAs to the limit, then putting the rest in shares. Big investors, especially those putting money in bonds, should max out their stocks & shares ISAs. Read the Stocks & Shares ISA guide for more information.

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  Alternatives to ISAs

• Is it even worth saving in an ISA as rates are so low?

  Yes if you want a tax-free lump sum for the future.

  But if you're thinking "I want high rates AND a tax-free savings pot", there is an answer. You could put cash into a higher-paying account – see current accounts for 3% deals on up to £5,000 or top savings to get 1.5% on £20,000 – then a week before the end of the tax-year (6 April), move the cash into an ISA.

  You get the high rate for a year, and keep it safe from the taxman going forward.

• Should I offset my mortgage instead of putting cash into an ISA?

  What you should do depends on your personal circumstances. If your mortgage rate is higher than what you could earn in an ISA, then yes, you'd be better off offsetting.

  But if your rate is lower, or there are high penalties for repaying early if you don't have an offset mortgage, you might be better off putting savings in an ISA. Not only that, it'll give you a safety cushion should you need it in future.

• Should non-taxpayers bother with ISAs when it makes no difference?

  If you're likely to be a tax payer and earn more than your personal savings allowance in interest some time in the future, then yes.

  If you do build up a lump sum of non-ISA cash, then go back to work, you'll have to pay 20% tax on any interest earned over £1,000 for basic-rate payers, 40% on any interest earned over £500 for higher-rate.

  With cash in an ISA, whether you return to work or remain a non-taxpayer, the money is always protected.

• If £1,000 or £500 in interest are tax-free in savings anyway, is there any point in an ISA?

  Since April 2016, basic-rate and higher-rate tax payers have a new personal savings allowance. This allows you to earn £1,000 in interest before paying tax if you're a basic-rate taxpayer, and £500 if you pay higher-rate tax.

  But this doesn't negate all the advantages of ISAs. There are many who will still benefit from saving in an ISA even if their tax status would be the same wherever they saved.

• Cash ISAs vs premium bonds – what's best?

  They are calculated in a completely different way. The only similarity is that they're both tax-free. Cash ISAs are simply savings accounts where you never pay tax on interest earned.

  Meanwhile, premium bonds are simply a savings account you can put money into (and take it out when you want), where the interest paid is decided by a monthly prize draw. You can win between £25 and £1 million, tax-free.

  If you owned every premium bond in existence, the amount won over a year would be equal to 1.15% of what you put in. So very roughly, for every £100 put into premium bonds on average, you'd expect a £1.15 annual return.

  Yet because of the way the prizes are allocated, the majority of people will win much less than the interest rate anyway. You can use the Premium Bond Probability Calculator to see how likely you are to win an amount equal to the interest rate.