Martin Lewis' new ISA breakdown

Published Monday, 30 June 2014
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Tuesday will see the biggest change to savings since 1999, when ISAs launched because they magically transform into NISAs (new ISAs), meaning everyone can now put £15,000 into cash or shares savings without paying tax on it.


Money Saving Expert Martin Lewis helps work out if you can take advantage.

1. What's a cash NISA?

It's much like a cash ISA, except it's got a new name, you can save more in it and there have been a few technical changes.

But the most important thing to know is that a cash NISA is just a savings account where you don't pay tax on the interest. Better still, once the money is in it, it stays tax-free year after year.

The gain's simple. Earn £100 interest in a savings account and, after basic tax, you only receive £80, after higher rate it's £60. In a cash NISA, you keep the whole £100.

And as a NISA is just a 'savings account you don't pay tax on', just like normal savings accounts, there are ones where you can take your cash out straight away, ones where you lock it in to earn more, and others.

So as long as rates are similar, NISAs beat normal savings after tax, and as the top NISA rates tend to beat top savings anyway - they're usually a winner, although some top paying current accounts (where you need to switch bank accounts) do pay such high rates that in the short term, they beat ISA returns. See Martin's 5% savings guide.

2. How much can I put into a NISA?

The new tax year started on 6 April. From this date every UK over-16 got a brand new, bigger cash ISA allowance of £5,940 (up to £11,880 stocks and shares for over-18s).

Yet from tomorrow (1 July), ISAs turn into new ISAs (NISAs), meaning you could choose to pay in:

  • £15,000 to a cash NISA.
  • £15,000 to a stocks and shares NISA.
  • A mix of the two up to £15,000 in total.

16-18-year-olds can't open an adult stocks and shares NISA, so their £15,000 must all be deposited into an adult Cash NISA.

3. What if I've already opened an ISA this year?

You can only open one cash NISA and one stocks and shares NISA to put new money into each tax-year. But you can open other NISAs to transfer old ISAs into.

If you've opened an ISA for new money since 6 April this year, from 1 July it just means you'll be able to top up this allowance up to £15,000. Many fixed ISAs are giving customers a short window to top up their allowance from 1 July - so check your existing ISAs' terms and conditions to see if you can deposit after this allowance increases. If you can, do it quickly.

4. What are the best easy-access cash ISAs?

If you KNOW you need to take your cash out soon, then you need easy-access. Here are the top rates (at the time of writing). Rates are changing rapidly as new NISAs are launched to coincide with 1 July - see Martin's Updated NISA Best Buys guide.

Two accounts available to everyone currently pay 1.5% AER variable and allow you to withdraw cash whenever you want. Virgin Money (minimum £1) allows you to transfer existing ISAs in at this rate too, while Nationwide (min £1,000) also pays 1.5% and allows transfers in at this rate. Nationwide also pays 1.75% with no transfers in allowed to some of its existing current account customers. The Nationwide account can be opened online or in-branch while the Virgin Money account can be opened online if you want to manage it online-only, or by post/in-branch if you want to manage it via these means.

It's worth noting a few credit unions offer higher rate ISAs to limited groups of people, Voyager Alliance Credit Union, for example, has an ISA at 2% (if you work in transport). Use Abcul to see if there's a credit union that works for you.

5. Most should grab up to 2.75% cash ISAs

Unless you KNOW you'll need the cash soon, there are far better deals than easy-access ISAs. Plus, manipulate fixed deals, and they still let you access the cash when you want.

Like all fixed rates, the Coventry BS four-year fix at 2.75% (min £5,940, no transfers in allowed) is designed for locking cash away. But it allows you to close the account and withdraw early for a relatively low penalty, just 120 days' interest. It will also allow a "limited time" for top-ups from 1 July.

A number crunch shows if you withdraw after a year, you'd effectively have got 1.85%, beating the best easy-access deals. After two years it's 2.3%, beating the best two-year fix. You can apply for the account online, in-branch or over the phone.

6. What's the best buy for those who want to put money in each month?

Nationwide's regular saver pays a variable 2.33% AER. You need to deposit a minimum of £1, you can then deposit up to £1,250 each month (though you don't have to put cash in each month).

The big boon with this product is you can withdraw cash whenever you want, so if you don't have more than £1,250 to put in it, you could open it anyway, dosh your cash there at a high rate with easy access, then not add to it. You can open it online if you're an existing Nationwide customer, otherwise you'll need to go into a branch.

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