How to save into an Isa

Let’s face it, long-suffering savers don’t get much in the way of rewards for their efforts at present.

That makes it now more important than ever to avoid the tax man skimming some off the top. 

Cash Isas are arguably still one of the best long-term tools to do so – these are savings accounts where you never have to pay tax on income. 

Here’s everything you need to know, from why they are still worth opening after the introduction of the personal savings allowance, to the deals that make Isa saving more flexible. 

Isa savings: Don’t let the tax man get his hands on your interest

Cash Isa accounts, once the shining stars of the savings world, have become increasingly unloved by savers since the introduction of the personal savings allowance, worsened by a spell of rock-bottom rates.

The personal savings allowance helps savers automatically avoid the typical 20 or 40 per cent income tax on savings income, even outside an Isa. It offers a £1,000 tax-free threshold on earnings from savings for standard-rate tax payers while higher-rate payers get a slimmer £500. 

Savers would need a generous sum in the bank at current rates to earn enough to push them over these limits.

However Isas are still an essential savings tool that shouldn’t be disregarded, especially for those who have built up a tidy nest egg. 

Here are four reasons why they are still worth opening.

1. As soon as rates begin to rise, that tax-free buffer gets squeezed. That’s not a problem with savings held in an Isa. 

As rates rise, the amount you need in the bank to get you to that £500 or £1,000 income threshold, gets smaller. 

2. Isas are tax-free for life. This is particularly important for those building a substantial pot, over time.

3. They remain tax-free after death when transferred to a spouse. Should the worst happen, the tax-efficiency benefit of the Isa isn’t lost and can be passed between civil partners or spouses, unlike standard savings accounts. 

When someone dies, a one-off additional Isa allowance is passed to to their partner for that year, equivalent to the value of their Isa. 

4. The Government is unlikely to meddle with them. 

There is no guarantee that the personal savings allowance won’t be tinkered with or removed in the future as it’s relatively new, while the Isa is a long-established savings product. 

How much can you save tax-free?

Junior Isas: Savings for youngsters come with more generous rates

Junior Isas: Savings for youngsters come with more generous rates

You must be 16 or over and a UK resident to open a cash Isa. 

You can currently save up to £20,000 per year tax-free under an Isa wrapper. This can be divided across cash, stocks and shares and innovative finance Isa accounts.  

Those up to 18 can also open a Junior Isa which offer higher interest rates, but a lower annual limit of £4,368 per tax year.

This loophole means you could potentially save up to £24,368 between the ages of 16-18.

What’s on offer?  

The rates on fixed term accounts will generally be better than those on easy access cash Isas, where you are paying for the flexibility allowed.

You need to balance the rate against whether the account suits your needs. It may also be worth considering a flexible Isa or mix-and-match style account. We discuss the benefits of these further down.

To find the best Isa rates for all types of account go to This is Money’s independently compiled savings tables. Alternatively, check out our top five Isa picks in our roundup here.

How many accounts can I have open?

Savers can usually only open one cash Isa account per tax year, which means you must decide whether to opt for either a fixed-rate account or easy access product.

There are slight exceptions to the rules however if you open a mix-and-match style Isa.

These allow you to open both fixed-rate and easy-access cash Isa products with the same provider, wrapped together into one Isa as long as you do not exceed the annual limit.

Only a handful of providers offer this option: Post Office, Nationwide, Aldermore, Kent Reliance, Newcastle BS, Ford Money, M&S Bank, NatWest and Charter Savings Bank.

What about old Isas?

There are no limits on how many old inactive Isa accounts from previous tax years you have open, as long as you are not paying into them.

You may be better off combining your Isa pots however, by completing an Isa transfer to a new table-topping account to ensure you are still getting the best rate.

You can read our step by step guide on how to do this, here

When to open one

If you are not already taking advantage of your tax-free allowance through an Isa, it is always the right time to open one.

But there are times of year when you are likely to get a more competitive rate.

The best rates tend to be offered in the run-up to the end of the tax year, and just after. Dubbed Isa season – the months between March and May are a great time to open a new account. 

Use it or lose it

Remember if you don’t fill up your subscription for this tax year, it won’t roll over into the next tax year, so make sure you top up your Isa balance before April 5.

Compound interest: Leave your money where it is to maximise on interest

Compound interest: Leave your money where it is to maximise on interest

Think carefully before making withdrawals

First off, whether you can do this depends on the terms and conditions of the account you choose.

There may be a limit on the number of withdrawals or you may have locked your cash into a fixed-rate bond.

As a general rule, once money has been withdrawn you won’t be able to replace it in the same tax year. The £20,000 limit applies to how much you add into the account in the year, not the total balance.

For example, fill up your account with £17,000, but withdraw £2,000 and you will only be able to add £3,000 again, not £5,000.

Consider a flexible Isa 

Some banks now offer flexible Isa deals however that allow you to withdraw and replace money into your account freely within the same tax year, without affecting your allowance.

This also applies to money in old cash Isas too.

Say at the start of the tax year you have a £40,000 pot amassed over several years. You add £5,000 but later need to withdraw £15,000.  

A flexible Isa would allow you to replace £30,000 in total that year – the £10,000 withdrawn from your previous year’s subscription, the £5,000 added this year, plus the rest of your annual allowance, a further £15,000.

This also works for a previous year’s subscription transferred in from another provider. 

The extra flexibility is worth considering. Not all providers offer it and many of those that do will only offer the option on a variable-rate or instant access Isa.

A few that frequently top our independent This is Money best-buy cash Isa tables, offering flexible Isas are: Aldermore, Coventry BS, Ford Money, Nationwide, Newcastle BS, Principality BS, Skipton BS and Virgin Money. 

Make sure to read the small print before you apply though.



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