Important ISA Rules You Need to Know About

by Sean Bryant on October 1, 2012

An ISA (Individual Savings Account) is a very good way to save money, mainly because they offer ISA account holders the opportunity to accrue tax-free interest on their savings.

Those opening an ISA for the first time are likely to have some questions about how ISAs work. To make things a little clearer, here are a few of the most important facts you need to know about ISAs.

  • You’re only allowed one cash ISA. However, you are also allowed a stocks and shares ISA.
  • There is a limit to how much you can save in an ISA each year. Each year, a new limit is set for how much you can save in your ISA account. This year, the cash ISA limit is £5,640. However, the total allowance you can split between a cash ISA and a stocks and shares ISA for this year is £10,200.
  • If you don’t use up your ISA allowance within the tax year, you lose it. You have until April 5th at the end of the tax year to fill up your ISA account to meet your full allowance or you lose the allowance. You can’t carry it over to the next year, when the next year’s allowance kicks in.
  • With a fixed rate cash ISA you can’t withdraw your money without incurring penalties. You generally get a higher interest rate fixed for a set period of time when you take out a fixed rate cash ISA, but you may not be able to withdraw money from your account without incurring a fee or a proportion of your interest.

Do any of you use an ISA account?  What Are your thoughts?

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Sean Bryant

Sean Bryant created in 2011 to help pass along his knowledge of finance and economics to others. After graduating from the University of Iowa with a degree in economics he worked as a construction superintendent before jumping into the world of finance. Sean has worked on the trade desk for a commodities brokerage firm, he was a project manager for an investment research company and was a CDO analyst at a big bank. That being said he brings a good understanding of the finance field to the One Smart Dollar community. When not working Sean and he wife are avid world travelers. He enjoys spending time with his daughter Colette and dog Charlie.
  • I don’t find that cash ISAs are worth it because of low interest rates, so I go full stocks and shares. I used to max it out straight away on April 6th but since many people do the same, stock prices are often high, so I have a monthly direct debit, it usually gives me a lower average stock share, without thinking that I can outsmart the market and actually buy too high!

  • holly

    I don’t have one but it is certainly an interesting concept.

  • Jason @ WorkSaveLive

    This is my first time hearing about an ISA, so thanks for sharing the info!

  • John S @ Frugal Rules

    I’m with Jason, I’ve never heard of an ISA. It does sound like a possibly good tool to use.

  • Marie at Family Money Values

    Sounds very similar to an IRA (individual retirement account).

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