Cash ISAs – the safe investment?
An investment is a necessity in everyone’s life. It can vary from an investment for retirement purposes to saving for a child’s future or just to get money together for life’s unforeseen eventualities.
A Cash ISA or Individual Savings Account is a tax-free savings account. This means you do not have to declare any income you receive from them. There are certain minimum amounts that can be invested and that can be anything from a very small amount to a more substantial amount. To the detriment of the account, it cannot be used to secure a loan, something that another account would be able to do.
Although not a pension product, it can be used to complement any savings you are making towards your retirement. Selected ISAs are only available online and they tend to have higher minimums and higher interest rates. So, if you have a large sum to invest, this would be an option to consider.
The interest rates vary from company to company and product to product but all have maximum amounts that can be invested for the tax-free annual interest. The latter applies only to the first year. Other savings accounts do not offer tax relief on interest.
In many instances the rate is guaranteed for one year; while other ISAs have a variable rate, which changes as the prime rate changes. Many ISAs allow you to make transfers from existing cash ISAs. At the end of the bonus period, you can consider moving your money to another ISA.
Selected ISAs allow withdrawals during the course of the year while others offer bonuses if you do not withdraw. Many ISAs, however, permit unlimited withdrawals without penalties.
If you invest in an ISA where the rate does not include a bonus that disappears at the end of the first year, you will not suddenly see your returns diminish.
Keep in mind that if you withdraw from your ISA account, you cannot pay this money back in. Also remember that selected accounts stipulate that if your account drops below a specified minimum, your variable rate will drop substantially.
To be able to invest in a Cash ISA, you must be at least 16 years old and you must be a resident of the country where you are staying.
An ISA can only be in the name of one individual and not more than one person. With other accounts, it is possible to have a joint account, for instance, where the husband and wife have one account in both their names.
The product is considered to be safe and those who qualify will do well to use the opportunity and invest in it. All financial products, banks and building societies included, are regulated and as such your money should be safe.
Even so, banks have closed under the pressure of the current economic conditions. Provided you don’t put all your eggs in one basket, you should not have a problem with an ISA.
The product varies quite a bit, so it is essential that you do your homework to find the best one for your needs.
