Cash ISAs and savings
Cash – a deposit made into a bank account – is a really important part of any investment portfolio. No matter what your goals are, it’s essential to have some cash tucked away for a rainy day or emergency. If you don’t, you may be forced to sell investments at a loss.
Doing more with your cash
If you think cash is risk-free, think again. You'll get your money back but high inflation and low interest rates can soon eat into its buying power. For that reason, most investors try to make sure their cash earns as high a return as possible by using some of the products below.
If you keep your money in a current account, chances are it’s not gaining much – if any – interest at all. Transfer it over to a savings account and you’ll be able to earn a small amount of interest without tying up your money. You will receive a better return on your money, but you may not have the same flexibility to withdraw it.
Cash Individual Savings Account (ISAs)
A cash ISA is a savings account that allows you to save your money and earn interest, free of UK Income Tax. The rules relating to cash ISAs are changing. Until 1 July, you can save up to £5,940 of your total £11,880 annual ISA allowance in a cash ISA. From 1 July, the ISA allowance increases to £15,000 and can be used in full in either a cash ISA or an investment ISA or split between the two.
If you choose to, you can invest the balance of your annual ISA allowance in an investment ISA. Please bear in mind that the value of an ISA’s tax benefits will depend on your individual circumstances and that tax rules can change 2.
If you already have enough cash savings tucked away to cover any emergencies, you might choose to invest the full allowance in an investment ISA. However, this type of ISA comes with the risk that you could get back less than you paid in.
If you decide a cash ISA is for you, there are lots of different types available. Some are completely flexible and let you take out your money at any time. Others offer higher rates of interest if you commit to saving for a set period. As with all investments, it’s worth doing your research before making your decision.
These usually offer a higher rate of interest than standard cash savings accounts. However, you have to agree to leave your money in for a fixed period of time. And if you are allowed to withdraw your money early, you might have to pay a penalty.
Money market funds
These are not cash investments or savings accounts. They carry the risk of you losing your money. Basically, these funds aim to earn you a better return than bank interest rates. They do this by holding a mix of investments – eg, some deposits and short-term securities that earn interest but can fall in value. They can earn you a better rate than cash savings accounts but returns are not guaranteed and you could get back less than you invest. You might be required to defer withdrawals.
You can’t currently hold money market funds in an investment ISA. However, they can be held in a MarketMaster®, Barclays Stockbrokers' general investment account.
When ISA rules change on 1 July, you will be able to hold money market funds in an investment ISA.
How to choose cash investments
A secret to good cash management is knowing how long you can commit to saving for. In general, the longer you are willing to keep your money in one place, the higher your potential returns.
We offer a wide choice of cash investments, including savings accounts and cash ISAs. The right one for you will depend on your investment goals.
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2. Tax rules can change and the benefits and drawbacks of particular tax treatment will vary with individual circumstances. We aren't a legal or tax adviser and aren't providing you with legal or tax advice. If you have any queries as to the legal or tax implications of any investment, you should seek independent professional advice.