How to find the best ISA account for you

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Unspalsh

If you are a savvy saver who wants to make the most of your savings and maximise the interest income, there are so many different savings accounts out there that it can be challenging to choose. This guide will walk you through some of the features of ISAs which could help you find one that’s right for you and your trading strategy.

What is an ISA?

Tax-Free Savings Accounts (TFSAs) were introduced in government legislation under Gordon Brown in 2008. They work by allowing account holders to shield their earnings from tax by up to £15,240 per year – or the total amount if the holder is under 18 years old and earn additional interest on top without having it taxed at source. There are limits on how often you can make contributions and when the money can be taken out (although most providers give 28 days’ notice).

When it comes to ISAs, there are two types. Cash ISAs allow your savings to grow free of income tax or capital gains tax up to the limit of £15,240 per year. In contrast, stocks & shares ISAs let you put your savings into investments such as shares in banks and investment funds – but only if you can stomach more significant fluctuations in value.

What features should I look for in an ISA?

Choosing which type of ISA is right for you will depend on your preferences. If you’re deeply invested in Robin Hood-style trading strategies, then a stocks & shares ISA will probably be your first choice. However, if the thought of not knowing exactly what’s happening to your money makes you nervous, a cash ISA may be more appropriate.

What about interest rates?

ISAs typically come with higher average interest rates than those offered by standard savings accounts, as they aren’t subject to the same regulations as other types of financial institutions. 

Just remember that there is no consensus within the industry: at any given time, some providers may increase – or decrease – their rates, and this could cause fluctuations in which provider offers the best deals, so shop around and monitor changes closely. You can also check Savings Champion regularly for updates on current rates and provider reviews.

How can I see how my savings are performing?

Tiered rates are now commonplace with ISAs, where the interest paid on your account is divided into separate bands depending on how much you have saved. This means that no matter what amount you’ve put away, there’s still a good chance of the maximum rate being applied to it – fantastic news for those who don’t think they could ever make substantial savings! 

Don’t forget about flexibility.

Some providers allow you to withdraw funds without penalty before settling any capital gains tax or other charges. So if an emergency strikes, you won’t lose out just because of having an ISA. This is a great way to make your money work for you while still keeping some on hand in case of unexpected expenses.

Risks associated with ISAs

In most cases, unlike current accounts or savings accounts, you can’t touch your ISA without being charged a fee or losing the tax benefits. This means they shouldn’t be used as emergency funds since it’ll take longer than usual to access them in an emergency.

Another risk is the age restrictions enforced by providers: most require that you have been under 16 when opening one, although older people may also be allowed. 

Finally

Interest rates aren’t the only thing that matters regarding banking and financial services. You might be drawn to certain providers because they have better customer service, offer greater security, or provide other benefits which make them preferable. Just remember that rates will constantly fluctuate, so shop around regularly. Even if you’ve found an ISA account with the lowest current rate, it could suddenly become higher once all your small savings are accreted at said rate. For more information on ISAs, look here.

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