Confused about ISAs?
Nationwide explains everything you need to know about ISAs
24th January 2012: As the world's largest building society and the second largest UK savings provider with over 150 years of savings history, we would like to think we know a thing or two about ISAs. So we thought we’d share it with you.
ISAs can give you the opportunity to save tax-efficiently. Sure that sounds great, but what does it mean? In fact, what is an ISA anyway? Read on to learn everything you wanted to know about ISAs, but were afraid to ask.
Q. What is an ISA?
A. ISA stands for Individual Savings Account. ISAs were introduced in the late 1990s and were created to encourage saving by offering tax-relief on the interest earned.
Q. Are there two types of ISA?
A. Yes, there’s a cash ISA which allows UK residents aged 16 or over to save tax-free (up to £5,640 with one provider in the 2012/13 tax year) and operates just like a normal savings account. With most savings accounts, if you are a taxpayer, the taxman gets a cut from the interest you earn. That’s why it’s reassuring to know that with a cash ISA, all the interest you earn, you keep.
A stocks & shares ISA invests into stocks & shares which have the potential over the long term, to deliver higher returns than a cash ISA. Stocks & shares ISAs will invest in assets that can fall as well as rise and you may not get back the amount you originally invested. This type of ISA is open to any UK resident aged 18 or over. It lets you invest up to £11,280 (2012/13 tax year).
Q. What is the ISA allowance?
A. Each tax year, you have an allowance that you can use for your ISA. For this current tax year (6 April 2012 - 5 April 2013) your full ISA allowance is £11,280, of which you can save up to £5,640 in a cash ISA, with the remainder in a stocks & shares ISA, or you can invest your entire allowance of £11,280 in a stocks & shares ISA. You can only save with one cash ISA provider in each tax year and the same or another provider for a stocks & shares ISA.
Q. What is the significance of 6 April?
A. This is the first day of any given tax year. In ISA terms, this is when you can start using your new ISA allowance for the new tax year.
Q. What will next year’s ISA allowance be?
A. For the new tax year beginning 6 April 2013 until 5 April 2014 your new ISA allowance will be £11,520 of which £5,760 may be placed into a cash ISA or you can choose to invest the full £11,520 into stocks & shares ISA.
Q. Why would I choose to save in a cash ISA rather than a normal savings account?
A. It’s simple. With a cash ISA your money is protected from the taxman. So you don’t have to pay any tax on the interest you earn. With interest rates at an all-time low, it’s a way to help your money work as hard as possible.
Q. Will my savings be tied up in an ISA?
A. It depends on the kind of ISA you choose. Some cash ISAs allow instant access to your money whereas others require notice or loss of interest to make a withdrawal. You can withdraw money from a stocks & shares ISA at any time, so you can be sure you’ll have access to your money when you need it. But to allow time for your investment to grow, we suggest holding it for a minimum of five years. In any tax year, if you withdraw some or all of the money in your ISA, you will not be able to replace the amounts withdrawn within the same tax year, unless the amount you wish to save or invest is within your unused ISA allowance.
Q. Will I be able to save in an ISA like I do with my ‘normal’ savings account?
A. We offer a cash ISA equivalent to almost all our savings accounts so, if you factor in the annual allowance, then broadly, yes. Whether you’re after easy access to your money, a fixed rate on your ISA for a set period of time or an online account, Nationwide’s range of cash ISAs can help.
Q. Why invest in a stocks & shares ISA?
A. Stocks & shares have the potential, over the long term, (five years or more), to deliver higher returns than a cash ISA, but they are higher risk. You can be assured we have gone to great lengths to handpick what we believe are some of the best funds available. We offer a range of funds, from low to high risk, which are all run by some of the UKs leading fund managers and can be invested tax-efficiently as a stocks & shares ISA. With stocks & shares ISAs, you can start investing with as little as £20 and add to it whenever you like (up to your annual ISA allowance, of course).
Q. Can I open an ISA today?
A. Yes! As long as you haven’t used this years ISA allowance, or opened a cash ISA with another provider this tax year. As you’ll see, we’ve a wide range of cash ISAs to choose from to suit all kinds of savings needs. And you can open some of them with as little as £1. If you’d like to discuss your stocks & shares ISA options, please make an appointment with one of our Senior Financial Consultants.
Q. I already have a cash ISA with another provider. Can I transfer it to you?
A. You can transfer your cash ISA in just three simple steps. And the good news is, as long as your cash ISA is free to move and not subject to any notice period, you’ll start earning interest as soon as we receive your application. This is one of our seven Savings Promises, and it’s designed to ensure that savers are better off with us.
Investments are provided through Legal & General.
The value of Investments can fall as well as rise which could mean that you may not get back the amount originally invested. You should therefore aim to invest for a minimum five years.