Individual Savings Account

The introduction of ISA in 1999 has brought citizens in the UK a good method of savings and investment. Compared to the previous system of UK saving scheme (PEP and TESSA), the idea of introducing ISAs was to encourage all classes of UK consumers to deposit money on banks where the economy and the saver can both benefit. An Individual Savings Account allows savers to obtain money tax free.

Depending on the bank, ISA interest rates differ from the very low to the high. Cash access also vary since some ISAs have fixed-term, fixed rate and notice periods where you won’t be able to gain access to your money ‘til the fixed term ends whereas some ISA polices offer savers an easy access to their money.

The basic kinds of ISAs are Cash ISA and Stocks and Shares ISAs. In order to open a Cash ISA, the individual should be at least 16 years old while opening a Stocks and Shares ISA will require individuals to be 18 at least 18 years old. Also, for individuals who were born before April 5 1960, an amount of £10,200 is their ISA allowance yearly and for people who are born past April 5 1960 has an ISA allowance of £7,200 but these sums is said to be raised to £10,200 by April 6 2010.

What’s with the April 5 and 6 you ask? It’s because April 5 and 6 are the end and start points of the tax year, in that order. Furthermore, it is recommended that you use the allowance you acquire from your ISA prior to theending of the tax year if not you will lose it when a new tax year begins.

Because of the current economic state, the base rate of the Bank of England has sunk to just 0.5% per year. So shopping around for ISAs will be one of the wisest move on your part so you can select which one presents a much higher interest rate. Unfortunately, the slow economic recovery is making ISA interest rate lower to as low as 0.1%. If you have £5,000, you’ll only get £5/year with this sort of rate. Currently, the highest interest rate you can acquire on an ISA is a maximum of 2.75%.

Other ISA arrangements can even offer higher yearly rates of more than 3%. An ISA with a minimum fixed term of five years can provide as much as 4.6% every year and this type of ISA can be compared to time deposits. You should conscientiously think ahead of making a hefty deposit to this kind of ISA because you won’t be able to have access to it within the term.

If you already have an ISA account, you can also transfer it to another provider that offers a higher rate. But you should not close your account or withdraw the money since this will not be passed over to the new provider you want to switch over. the balance transfer should be completed by your current provider after you coordinated with them.

To save you the trouble of waiting in long lines, you should open an ISA savings account at the early possible time. A few weeks before the tax year ends, it has been proven that more people open ISA accounts than other time of the year. If you open an ISA in a much earlier date, you can avoid the rush and you will also earn your interest rate much sooner.