We all want to make the most of the interest we earn on our savings and an Individual Savings Account (ISA) lets you do just that. This is because an ISA lets you save a maximum amount each tax year that allows you to earn interest without tax being deducted.
There are four types of ISA
- Cash ISA
- Stocks and Shares ISA
- Innovative Finance ISA
- Lifetime ISA
Please note: the West Brom does not offer all of the types of ISA shown in this guide.
If you want to make the most of your savings, and have easy access when you need it most, then a Cash ISA could be ideal. Cash ISAs come in various shapes and sizes, including:
Fixed or variable rate – the rate on your Cash ISA can either be fixed or variable. A fixed rate means the interest rate on your Cash ISA is guaranteed for a set period. A variable rate means that the interest rate on your Cash ISA may change at any time.
Easy access – allows you to earn tax-free interest whilst still having access to your money when you need it most.
Fixed term – with these Cash ISAs you lock away your money for a set term. You can access your money if you need to but a charge will be applied.
Notice – these are Cash ISAs that may pay higher interest rates in return for you giving advance notice that you want to withdraw your money. You can still get hold of your money without giving notice but a charge will be applied.
Flexible ISA – offers the flexibility to withdraw and replace savings within the same tax year without losing the ISA benefits. Please note: the West Brom’s Cash ISAs are not flexible ISAs.
Help to Buy ISA – to help first time buyers save towards the cost of buying their first home. Savers will receive a 25% government bonus on amounts saved between £1,600 and £12,000.
Stocks and Shares ISAs
Stocks and Shares ISAs aim to give your savings a greater growth potential than a Cash ISA as they allow you to invest in the stock market. They tend to be over longer time periods – 5 to 10 years – and are riskier than Cash ISAs as the value of your investment, and the income from them, can fall as well as rise. You may get back less than you originally invested. To find out more about Stocks and Shares ISAs please make an appointment with the Independent Financial Adviser at your local branch.
Innovative Finance ISAs
Innovative Finance ISAs were introduced in 2016 and allow investors to lend to businesses or projects via a regulated peer-to-peer lending platform. You can invest up to the full £20,000 in an Innovative Finance ISA if you wish. You can only invest your Innovative Finance ISA in one platform per year.
The Lifetime ISA is designed to help you buy your first home or save towards your retirement. If you are aged 18 to 39, you can open a Lifetime ISA and save up to £4,000 tax-free each year up to and including the day before your 50th birthday. The government will pay a 25% bonus on your contributions, up to a maximum of £1,000 a year.
How it works
You can save up to £20,000 in an ISA for the tax year 6 April 2017 - 5 April 2018. You can choose to use all of it for saving in a Cash ISA or you can choose to invest it across the other types of ISAs available - you aren’t restricted to saving into only one particular type of ISA. For the tax year 6 April 2018 - 5 April 2019, the annual ISA allowance will continue to be £20,000.
Important things you need to know about ISAs
What are tax-free savings?
Simply put, tax-free savings mean that you won’t have to pay any tax on the interest you earn. With an ISA, you’ll receive 100% of the interest earned on all of the money in your account.
Who can have an ISA?
You need to be 16 or over to apply for a Cash ISA, and 18 or over to apply for a Stocks and Shares ISA, Innovative Finance ISA or Lifetime ISA – and a UK resident for tax purposes in all of these cases. Crown employees living abroad (such as diplomats and members of the armed forces) can also apply.
How much can I invest in an ISA?
The ISA allowance for the tax year 6 April 2017 - 5 April 2018 is £20,000. For the tax year 6 April 2018 - 5 April 2019, the annual ISA allowance will continue to be £20,000. You can choose to use all of it for saving in a Cash ISA or you can choose to invest it across the other types of ISAs available - you aren’t restricted to saving into only one particular type of ISA.
How many ISAs can I have?
You can only add money to one of each type of ISA each tax year. For example, you would only be allowed to add money to one Cash ISA each tax year, but you could still choose to add money to the other types of ISAs available in that same tax year. However, there are no limits on the number of different ISAs you can hold over time.
Can I transfer my existing ISA?
Yes, transfers of existing ISAs are allowed between banks and building societies but there are a few rules that apply. If you want to move your ISA you need to let your new ISA provider know and then they will manage the transfer process with your old bank/building society. Cash ISAs can be transferred to another Cash ISA or a Stocks and Shares ISA. You can also move funds from a Stocks and Shares ISA into a Cash ISA.
If you want to transfer the money you have invested in an ISA during the current tax year, you must transfer all of it to the new provider. For previous year’s ISA subscriptions, you can choose to transfer all or part of your savings. Please remember to check the terms and conditions of your account to see if there any restrictions or charges which may be applied when transferring an ISA.
Can I replace the money that I’ve withdrawn from my ISA?
You will 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 have withdrawn.
With the West Brom’s Cash ISAs, if you make a withdrawal, you cannot subsequently reinvest that amount in the same tax year if your total deposits will exceed your yearly allowance.
What happens if I don’t use my annual allowance?
Your allowance is only relevant for the current tax year. Once that year is over you will not be able to carry forward your annual ISA allowance to the new tax year if you have not used it.
Can I open an ISA for my children?
The standard ISA must be opened in your own name. However, some banks and building societies do provide Junior ISAs for children.
A Junior ISA is a long-term savings account that allows family and friends to save on behalf of a child up to an annual allowance of £4,128 for the tax year 6 April 2017 - 5 April 2018. The annual allowance will be £4,260 for the tax year 6 April 2018 - 5 April 2019. For children under 16, the account has to be managed by a parent (or someone with parental responsibility). Children over 16 can choose to hold both a Junior ISA and a standard Cash ISA in their own name. When the child turns 18, the Junior ISA turns into a standard Cash ISA and they will be able to access their funds.
Did you know?
Tax-free – is the contractual status of interest payable where interest is exempt from income tax.
Stocks and Shares – please remember the value of investments in a Stocks and Shares ISA may fall as well as rise and is not guaranteed. You could get back less than you invest.
Tax benefits – are subject to change and individual circumstances.
ISAs – will be operated in accordance with the appropriate Income Tax Legislation (‘The Government’s rules’). The Government is responsible for the tax treatment of ISAs and for how long the favourable tax treatment will be maintained.