UK based savers searching for the best savings rates for their money should first make sure that they’re taking advantage of their ISA (Individual Savings Account) allowance. While interest earned from money in an instant access savings account is taxable, cash ISAs offer the opportunity for tax-free savings – up to a point.
The current limit for cash ISAs sits at £5,100 per person per tax year – and it’s worth filling that wherever possible as unused allowances don’t roll over to the following year. You can add to your ISA in chunks throughout the year as many times as you like, paying as little or as much as you like, so long as you don’t exceed the limit.
The other main benefit to using ISAs is that your savings will be available to you instantly should you need to access them – and making a withdrawal doesn’t affect the tax benefits on the rest of your savings. One important thing to note, however, is that if you withdraw some money it doesn’t mean your deposit limit gets topped back up for the year. So if you’ve deposited £2,000 over the year and decide to take £1,000 out, your remaining deposit limit is still a further £3,100 – not £4,100 as some people make the mistake of assuming. Once you put money into your ISA that portion of your allowance is gone for the year, whether you subsequently withdraw that cash or not.
Stocks and shares ISAs are also available. If you’ve filled your cash ISA and have more to invest over the tax year then you are able to use a further £5,100 in stocks and shares to complete your overall £10,200 ISA allowance. Or, if you prefer, you can use the whole amount for stocks and shares (although this obviously means you will have no tax-free cash savings) or split across the two however you see fit, so long as the cash ISA portion is no higher than £5,100.
Once your ISA allowance is used up then its time to look elsewhere if you have more to save. Shop around for the best savings rates in terms of instant access savings accounts or perhaps consider a fixed rate savings bond if you can afford to put some money away for a set period of time.