On 6 April 2016, the personal savings allowance (PSA) was launched, which means all savings interest is 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, while higher 40% rate taxpayers can earn up to £500 interest.
Over the years, interest rates on cash savings have been virtually zero and ISAs have been less popular as savers needed significant pots to start earning interest beyond the thresholds. However with interest rates now on the rise, that threshold has come down and many savers could be missing out on tax-free savings.
To help you to understand what savings account is right for you, we’ve answered some of the most frequently asked questions about ISAs.
What is an ISA?
An ISA is a savings account that you pay no tax on the interest you earn. Everyone aged 16 and over can open an ISA and benefit from the ISA allowance each tax year.
How much money can I save in an ISA?
The ISA allowance is set each year by Government. This tax year, you can put up to £20,000 into your ISA (the tax year ends on 5 April) and once it’s in, it’s tax-free year after year. For example, if you put in £20,000 this year and £20,000 after 5 April, you’ll have £40,000 of tax-free savings.
Can I withdraw money from my ISA?
You’ll need to check the terms and conditions of your ISA to find out if you can make withdrawals and deposits, including replacing the money you’ve withdrawn.
What type of cash ISA is right for me?
Depending on your circumstances, there are a variety of ISAs to choose from* including:
• Cash ISAs – these include fixed or variable rate, easy access, fixed term, notice and others.
• Stocks and shares ISAs – these aim to give your savings a greater growth potential then a Cash ISA as they allow you to invest in the stock market but come with higher risk.
• Lifetime ISAs – these are designed to help you buy your first home or save towards retirement.
• Innovative Finance ISAs – these allow investors to lend to business or projects via a regulated peer-to-peer lending platform.
To find out more about ISAs and other savings accounts with the West Brom, visit www.westbrom.co.uk/savings, call 0345 241 3785 or visit us at one of our branches.
*Please note: the West Brom doesn’t provide all of the ISAs mentioned in this column.