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If you have extra cash to put away into a savings account but want the flexibility of being able to access it if you need to, an easy access ISA may be the best option for you.
You can save up to £20,000 in an ISA each tax year. This is the allowance for anyone aged 18 and over. When the new tax year begins each year on 6 April, you’ll get a new allowance.
Here we explain what you need to know about easy access cash ISAs.
What is an easy access ISA?
An easy access ISA does exactly what it says on the tin – gives you easy, or instant, access to the money within the account.
You earn interest on the money and the interest rate may go up or down at any point. Often these accounts pay a bonus rate for the first 12 months, after which the interest rate will fall. At this point, you’re free to move the money into a different account, either a new ISA in the new tax year or a different savings account.
Unlike money in a current account or standard easy access savings account, any interest you earn on money in an ISA won’t be subject to tax.
However, complicating matters, everyone also now has a personal savings allowance (PSA) which allows basic rate taxpayers to earn £1,000 in interest and higher rate taxpayers to earn £500 before they pay any tax on it.
This means the benefit of opening an easy access cash ISA is largely if it pays a higher rate of interest than other accounts, or if the interest on your savings will exceed the PSA.
How to open an easy access ISA
You can usually open an easy access ISA online, over the phone, in a branch, or by post, although these options can vary between providers and accounts. When you open the account you’ll need to pay a minimum deposit which could be as little as £1, depending on the deal.
You will then start earning interest on the money and should be able to access it at any point, without penalty.
How to choose an easy access ISA
Increases in the base rate have generally led ISA providers to improve interest rates on their ISA accounts. However, some deals are better than others and it always makes sense to shop around to find the highest rate you can.
Also, take note of how the account can be opened and operated, and what the minimum deposit is to make sure you’re picking the right account for your needs. Here we outline some of the pros and cons of an easy access ISA to get you started:
Pros of an easy access ISA
- You can earn interest on your savings.
- If interest rates rise, you’re free to move your money into an account paying a higher rate of interest.
- If you need to access your money, you can at any point without penalty.
Cons of an easy access ISA
- Interest rates on easy access ISAs tend to be lower than other accounts.
- Accounts may pay bonus rates that will drop after 12 months.
» MORE: Choosing an ISA
How many easy access ISAs can I have?
From 6 April 2024 you’re allowed to open and pay into multiple ISAs of the same type each tax year, so if you wanted to, you could have several easy access ISAs. Keep in mind however that you can only save the maximum of £20,000 across all of your accounts.
You can spread your ISA allowance across other ISA types such as a stocks and shares ISA, a lifetime ISA or an innovative finance ISA.
» MORE: About ISAs
Is my money protected?
All UK banks, building societies, and credit unions are covered under the Financial Services Compensation Scheme (FSCS). This means up to £85,000 is covered per person, per financial group if an institution goes bust. You can check if a provider is covered by the FSCS by checking its register.
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