Top Cash ISAs 2018/19

Cash ISAs need-to-knows

• Cash ISAs are just savings accounts you NEVER pay tax on

  Everyone in the UK who's 16 or over gets an ISA allowance at the start of each tax year. For 2018/19 it's £20,000 – if you put money in it then it isn't eligible to be taxed, and this stays the same year after year.

  It really isn't any more complex than that. Just like normal savings, cash ISAs come in different flavours – there's easy access (where you can withdraw money whenever you want), fixed rate (where you get a guaranteed rate, but are supposed to lock cash in for a set time) and a variety of other types.

  So don't be scared, when you read cash ISA just see "a savings account you never pay tax on".

  Quick questions

  What happens to the allowance if I haven't used it by the end of the tax year?

  Each tax year (6 April until the next 5 April), everyone aged 16 or over gets a new ISA allowance. But if you don't use it, you lose it.

  Once that year's closed, you can't put another penny in that specific ISA allowance. So if you put aside nothing in the 2016/17 year, when the maximum was £15,240, that's it – it's gone. Or if you put £2,000 in during 2016/17, the year is closed, so you can't now top it up.

  If you do deposit the cash in time, you can keep it in there, tax-free, for as long as you like. Then, as soon as the new tax year starts on 6 April, you can deposit a whole new year's allowance.

  Can I make withdrawals?

  Providing you've picked an easy-access ISA, you can withdraw the money whenever you want, just like a normal savings account. But remember, once the money's withdrawn – unless you have a flexible ISA – it can't be returned.

  An example should help. Say you save £15,000 into a non-flexible ISA. That leaves £5,000 left to put in for the current 2018/19 tax year. Then two months later, still in the same tax year, you take out £10,000. You can still ONLY put £5,000 back in.

  How many ISAs can you have?

  According to HM Revenue & Customs rules, you can only have one current year's cash ISA open at any time. But you can have several old ones with several different providers, or you can have a cash ISA, a stocks and shares ISA, an innovative finance ISA and a Lifetime ISA at the same time.

  So if you opened a cash ISA with Barclays two years ago, you don't need to stick with it for this year's cash ISA – you can choose whichever the top payer is.

  Loophole to open more than one per tax year: A few providers allow you to open and pay in to more than one cash ISA with them in the same tax year under these rules:

  • The ISAs must be with the same provider.
  • You must stick to the overall cash ISA limit when totting up your combined balance between them.

  Can I split between a fixed and easy-access ISA (or regular saver ISA)?

  As we've already explained, you can put £20,000 in a cash ISA per tax year. With the bigger allowance introduced seven providers now offer a workaround. They've structured themselves so they can allow different versions of their ISA to count as one. So you can open as many of their cash ISAs as you like, as long as you DON'T GO OVER THE TOTAL CASH ISA LIMIT.

  The providers that allow this are...

  - Post Office

  - Nationwide

  - Aldermore

  - Kent Reliance

  - Newcastle BS

  - Ford Money

  - M&S Bank

  - NatWest

  - OakNorth Bank

  - Charter Savings Bank

  There's no special procedure – just open the ISAs and it'll be fine.

  Is my money safe in an ISA?

  Yes, it works the same as normal savings. So provided your money is in a UK-regulated bank or building society account, it's protected under the Financial Services Compensation Scheme. Its golden rule counts for cash ISAs too...

  The first £85,000 per person, per financial institution is guaranteed.

  While that sounds simple, the exact rules are more complex – not every bank in the UK is UK-regulated and there are complex rules involving how different banks are registered and what counts as a financial institution. For full info about the rules, see the detailed Are Your Savings Safe? guide.

  How to maximise safety

  If you've more than £85,000 of savings (including cash ISAs and others) in one bank, then, in the unlikely event it went bust, only the first £85,000 is fully guaranteed. So for total peace of mind, don't put more than this in any one institution. Spread it around instead.

  Our preferred option is to report the top rates regardless, but to let you know if there is no UK protection. Triodos Bank is an example of this (it's based in the Netherlands).

Other top ISA guides...

ISA Transfer: If you're looking to transfer old cash ISAs.
Full ISA: For everything you need to know about ISAs.
Help to Buy ISA: Get an up-to-£3,000 bonus if you're a first-time buyer.
Lifetime ISA: Get a 25% state bonus on savings for under-40s.

• These days, though, all savings are paid tax-free, so is a cash ISA worth it?

  On 6 April 2016 the personal savings allowance (PSA) launched. It means all savings are now automatically paid tax-free. Basic 20% rate taxpayers can earn up to £1,000 interest a year without needing to pay tax on it, higher 40% rate taxpayers £500 (top 45% taxpayers will always pay tax on savings).

  For most people that will be enough to make all their savings tax-free, and therefore the question is simply "what pays the highest rate?"

  The answer to that isn't cash ISAs. So for most people with under around £20,000 of total savings, cash ISAs won't be a winner as they're easily beaten for most people by both top bank account savings, where you get a high rate as part of your current account, and top easy-access savings accounts.

  So when is a cash ISA worth it?

  The most important thing to note is that cash ISA interest doesn't count towards your PSA, so you can earn it tax-free, and still have your full £1,000 (or £500) PSA allowance. Therefore for top-rate taxpayers or bigger savers who've used up the PSA, there are big tax advantages of saving in a cash ISA.

  - Basic-rate taxpayers over the PSA limit. For every £100 interest you earn in normal savings you only get £80, whereas in an ISA you get the whole £100. Therefore the normal savings rate would have to be 25% higher for it to beat a cash ISA.
  
  - Higher-rate taxpayers over the PSA limit. For every £100 interest you earn in normal savings you only get £60, whereas in an ISA you get the whole £100. Therefore the normal savings rate would have to be 66% higher for it to beat a cash ISA.
  
  - Top-rate taxpayers. For every £100 interest you earn in normal savings you only get £55, whereas in an ISA you get the whole £100. Therefore the normal savings rate would have to be 82% higher for it to beat a cash ISA.
  
  

  So cash ISAs can be winners even with lower rates. Also it's worth remembering that while £1,000-a-year interest seems a lot now with our current pitiful interest rates, if interest rates rise then more people will need to pay tax. So saving into an ISA now could protect you from future tax.

• You can save up to £20,000 this year in a cash ISA

  You probably know of cash ISAs; they've now been around for more than 17 years. They were radically overhauled in 2014, with the amount you're able to save tax-free rising from just under £6,000 to a massive £15,000.
  
  This year, due to the launch of the new Lifetime ISA, the limit has increased further to £20,000.

• Cash ISAs can be flexible – letting you replace withdrawn cash

  Some cash ISAs are flexible meaning you can replace cash withdrawn from them in the same tax year without it using up your year's ISA limit.

  In practice, this means that if you had £1,000 in a flexible cash ISA you could withdraw £500 and replenish it later in the tax year without affecting your ISA limit.

  If an ISA's non-flexible, any withdrawals do count towards your annual ISA limit. A £500 withdrawal from a non-flexible ISA would reduce your annual ISA limit even if you later deposited £500 back into the account.

However, it is up to different ISA providers to decide whether their accounts are flexible. We note in our best buys below whether or not the ISAs are flexible.

For full info on the flexibility, see Flexible ISAs.

• If you're a wannabe first-time buyer, consider a Help to Buy ISA or Lifetime ISA – not a cash ISA

  The first-time buyers' Help to Buy ISA launched on 1 December 2015 and it means that if you use the money towards buying a first home you get an extra 25% added on top, up to a maximum of £3,000. 
  
  Yet the rules say you can't contribute to a Help to Buy ISA and a cash ISA in the same tax year. So if you had to choose, even though you can put less in Help to Buy, the huge bonus means it's worth it. Luckily though there are a few providers who get round the 'you can't have both' rule; full info on this in our Top Help to Buy ISAs guide. 

  Alternatively, the new Lifetime ISA (LISA), which launched on 6 April 2017, also offers a 25% state bonus and can be used towards buying a first home or for retirement – though you can only open one if you're aged between 18 and 39.

  You can save a maximum of £4,000 a year into a LISA and use the bonus to buy property worth up to £450,000, and unlike a Help to Buy ISA can open both a LISA and a cash ISA in the same tax year. However, access your money for anything other than purchasing a first home or for retirement aged 60+ and you'll pay a 25% withdrawal penalty (after the first year of the scheme). Full info in our Lifetime ISA guide.

• Cash in an ISA stays tax-free YEAR AFTER YEAR

  Cash in an ISA stays tax-free as long as it's in there. The aim's to protect more of your money which is why we nag you about using the full ISA allowance if you can.

  If you miss a year now, you might regret it five years later. If you've big savings, you can gradually protect more and more of your cash. Those who started saving when ISAs were first introduced in 1999 could now be sitting on a good tax-free lump sum.

  

• Check rates on old ISAs, as many are pitiful

  Savings providers like us to think once our money's in, it's a done deal. This is wrong. Many old ISAs now pay appallingly low rates – check yours now. If the rates don't come close to the current best buys, ditch and transfer.

  You've a RIGHT TO TRANSFER to boost them. Consolidating new and old cash ISAs together into one new shiny ISA makes it much easier to transfer again in future.

  Our ISA Transfers guide has full options. Don't withdraw the cash though, as it'd no longer be in an ISA. Tell the new provider to transfer it for you instead.