What is a Cash ISA?
A Cash ISA is an individual savings account that offers tax benefits when saving your money. The key benefit of a Cash ISA is its tax-free status – you won’t pay any tax on the interest you earn with a Cash ISA. You get an annual allowance of £20,000 to save into a Cash ISA, and this allowance is shared with any other ISAs you might have – like a Stocks, also known as shares or equities, represent units of ownership in a company. & Shares ISA.
Cash ISAs are a good way to build your long-term savings, because over time the tax you might have to pay on the interest you earn can add up.
Advantages of a Cash ISA
- Tax benefits: the main advantage of a Cash ISA is that all the interest you earn is tax-free, which can lead to higher overall returns compared to a regular savings account – especially over the long term.
- Competitive interest rates: many Cash ISA providers will ensure that their interest rates are competitive in order to help customers achieve their savings goals. With the Moneybox Cash ISA, you’ll earn 5.09%* AER (variable), which includes a bonus rate of 0.94% for the first 12 months after you open your Cash ISA.
- Easy access: some Cash ISAs offer instant access to your funds, allowing you to withdraw money whenever you need it. Any withdrawals you make from a Moneybox Cash ISA will be with you by the end of the next working day.
Cash ISA vs savings account interest rates
You might be wondering whether the tax-free benefits of a Cash ISA apply to you. We’ve included the thresholds for personal savings allowances below. This is the interest you can earn on your money in a regular savings account before you have to start paying tax on it.
- Basic-rate taxpayers (20%) can earn interest of £1,000, tax-free each year
- Higher rate taxpayers (40%) can earn interest of £500, tax-free each year
- Top-rate taxpayers (45%) don’t get a personal savings allowance
But, don’t think that you won’t have enough in savings to generate this amount of interest each tax year. Rates have risen steadily over the last year or so – which means that basic rate taxpayers need around £20,000 in a regular savings account to start paying tax on it. If you’re a higher rate tax payer, that number falls to £10,000.
So, a Cash ISA and its tax-free interest benefits might be more applicable to you than you think. These numbers assume that you’re earning around 5% interest on your savings in a regular savings account.
What is a savings account?
A savings account is a straightforward way to save money. It’s a deposit account offered by banks and other financial institutions or financial service providers where you can store your money securely while earning interest. Unlike Cash ISAs, the interest you earn in a regular savings account is not free from tax.
Savings accounts are a good place to park your savings buffer or emergency savings – or any money you might need in the short or medium term.
Advantages of savings accounts
- Accessibility: savings accounts are widely available, making them easy to open at most financial institutions. There’s a wide variety of savings accounts available. For example, you can lock your savings behind a notice period to restrict your access to it, and to earn a higher interest rate.
- Competitive interest rates: depending on the bank or financial institution that’s offering the savings account, you may find competitive interest rates, especially for higher balance accounts or if you decide to save into a longer period notice account.
- No deposit limit: unlike Cash ISAs, savings accounts do not have an annual contribution limit. This makes them a great way to continue saving beyond your annual ISA allowance.
How to open a Cash ISA
You can open a Cash ISA in minutes, and with Moneybox it can all be done in our award-winning app. You’ll earn 5.09%* AER (variable) on balances of £500 or more, which includes a bonus rate of 0.94% for the first 12 months after opening your Cash ISA.
A lower interest rate of 0.75% AER (variable) applies whenever your account balance is less than £500. It also applies for the rest of your current 12-month period from your fourth withdrawal. The number of withdrawals you can make without impacting your rate will reset each year on the date you opened your Cash ISA.
Plus, we’ve got a whole host of ISAs to choose from, including a Stocks & Shares ISA if you’d prefer to invest your money. Download the app today to check out what we’ve got.
How to open a savings account
To open a savings account, you’ll first need to decide what you want to use it for. If you’d like quick access to your money, you might want to look into easy access accounts like the Moneybox Simple Saver.
Or, if you want to lock your money behind a notice period to earn a higher interest rate and restrict your access to your savings – which can help you build good savings habits – try looking into one of our notice accounts like our 32 Day Notice or 95 Day Notice accounts. Just download the app and head to Accounts to get started.
*Interest is accrued daily and paid into your account yearly on the date you opened your Cash ISA. The rate is variable, and we’ll inform you if it changes.