You can put £20,000 into a cash ISA in for the 2019/20 tax year, which will end on 5 April 2020. Any money you put into this account will not be taxed, so you’re free to earn interest on it which will in turn boost your savings.
Everyone in the UK can open a cash ISA
Cash ISAs are available to anyone in the UK aged 16 or over, there are lots of different types of accounts to choose from. These include fixed-rate accounts, whereby you put money away for a certain amount of time, and easy-access accounts, whereby you can take the money out as and when you need it.
If you’ve had an ISA before but the interest rate has dropped, you can transfer this money into a new ISA account with a higher interest rate.
Any money kept within a cash ISA remains tax free for as long as it’s in there. This means it’s important to use as much as you can of your allowance each tax year.
However, you’re only allowed to have one cash ISA open for the current tax year. Alongside this you can have older accounts, no matter what kind of ISA they are or which provider they are with.
Fixed v instant-access ISA
On the whole you will get a better interest rate with a fixed-rate ISA. Some of the market-leading accounts offer rates of around 2 per cent for a five-year fixed account, while for one-year fixed accounts it’s nearer to 1 per cent. Shawbrook Bank, for example, pays 2.3 per cent on balances of £1,000 or more with its five-year fixed-rate account.
You generally aren’t allowed to take any money out of one of these accounts before the end of the fixed period and if you do, you may lose out on the interest.
If you know you’ll need to access your money sooner, an instant access account might be better for you - although the interest rates available will be lower. One of the highest-paying accounts around comes from Kent Reliance, paying 1.46% on savings balances of £1,000 or more.
You could open a specialised ISA to meet your savings needs
There are a number of ISAs which work to help you save for a specific savings target. The Help to Buy ISA, for example, is aimed at first time buyers. It was launched in 2015 and the Government will add 25 per cent to any amount you save, up to a maximum of £3,000 each year. You usually can’t put money into one of these and a standard cash ISA in the same year though.
Another specialist ISA is the Lifetime ISA launched in 2017. It offers an extra 25 per cent bonus for those saving towards either a first home or for retirement and you need to be aged between 18 and 39 in order to open one.
You’re allowed to save up t £4,000 a year into one of these accounts, and you can use the bonus to buy property worth up to £450,000. The money can only be used for a home or retirement though, and if you use it for anything else you’ll be hit with a 25 per cent penalty.