Guide to ISAs
ISAs are savings and investment products where you don’t pay income tax on the interest you earn (or on the increase in value of your investment).
Bank of Scotland offer three types of ISA:
- Cash ISAs where you either have
a) easy access with no charge for withdrawals but the interest rate is variable, so it could go up and down
b) fixed with charges for withdrawals but a fixed interest rate for a length of time that you choose
- Stocks and Shares ISAs are a tax-efficient way of investing if you’re looking to put your money away for the medium to long-term (at least 5 to 10 years). Unlike cash ISAs, the value of your investment can go down as well as up and you may get back less than you originally invested.
- Junior ISAs are a tax-efficient way to save for your child and can be accessed by the child when they reach 18 years of age. A child can only have one Junior Cash ISA and/or one Junior Stocks and Shares ISA.
First time buyers can choose to save up to £200 a month in a Help to Buy: ISA instead.
To get the best use out of your ISA you should use your maximum annual allowance and do this as early as possible during the tax year – which runs from 6th April one year to 5th April the next year.
What are the ISA rules and limits?
The total amount you can save in ISAs in the 2015/16 tax years is £15,240. You can choose to invest up to your full allowance into a cash ISA, a stocks & shares ISA or a combination of both, providing you don’t invest more than £15,240 in total during the 2015/16 tax year.
The Help to Buy: ISA allowance is lower than the overall ISA allowance.
You can only pay into one cash ISA in any tax year so your remaining allowance can only be invested in to a stocks and shares ISA (contributions to Help to Buy: ISA and a Stocks and Shares ISA must not exceed the overall limit of £15,240).
Here are some examples of how it could work:
|Cash ISA||Stocks and Shares ISA||Total ISA Allowance|
You can only open and pay money into one cash ISA and/or one stocks & shares ISA each tax year.
How the ISA allowance works
There is an annual limit on how much you can put into an ISA in a tax year, so if you take money out, you can’t replace it during that tax year. For example:
- If you pay £10,000 into your cash ISA, you would then have another £5,240 that you could pay in to reach your maximum allowance of £15,240.
- If you took out £2,000, leaving £8,000 in your ISA, you could still only pay in £5,240 giving you a total of £13,240 in tax-free savings for this tax year.
You can't carry any unused amount over to a new tax year – the ISA allowance simply resets back to the annual allowance again on 6th April.