Cash ISAs can be a great place to put your money. Unlike a bank account, the interest is tax-free, and you can now put up to £5,100 in any tax year into your cash ISA. Many offer instant access, so are a sensible place for your rainy day money.
However, you always need to be aware of what your money is doing. Banks have come in for yet more criticism recently for failing to keep customers informed about interest rates and making ISA transfers unnecessarily difficult.
The Office of Fair Trading has now forced all banks to make it easier for customers to transfer between cash ISAs. However, despite calls from consumer groups, it is still not compulsory for banks to actually print the interest rate being paid on customer statements.
So customers are kept in the dark while the average rate of interest on a cash ISA has fallen to LESS THAN 0.5%. With inflation at 3.1%, this means that millions of people who are trying to save are actually losing money!
So what options do you have? First check the rate of interest your money is earning by contacting your ISA provider, then shop around. It is perfectly possible to switch cash ISAs when an introductory rate ends but check first that there is no penalty for doing this. Do not withdraw the money yourself or it will lose its tax-free status – let the new provider do this for you.
The other option is to transfer some of the money to an Equity (Stocks and Shares) ISA, which could earn a much better return for your longer term savings. Low interest rates have made Equity ISAs more popular than cash ISAs over the past year, although you should be aware that your money can fall as well as rise. An Equity ISA might suit you better if you don’t have the time to transfer every year or you are prepared to take some risk for potentially higher rewards. You can also invest twice as much into an Equity ISA – up to £10,200 per tax year.
For a free guide to saving and investing, or for further advice, enter your email address in the form below, contact Emma Greer; tel 028 90229798 or e-mail firstname.lastname@example.org.