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Three questions you wanted to know about ISAs but didn’t know who to ask

It’s “ISA season” in the press, when articles and adverts tell you it’s time to make the most of your ISA before the end of the financial year.

Cash ISAs are generally seen as a “Good Thing”, and there’s a simple reason why. Within a Cash ISA, as opposed to another savings account, any interest you earn is tax-free.

So if you have £5,000 invested in a Cash ISA for a year at 2% AER, you’ll earn an extra £100 in interest. If that was in a bank account paying the same interest, you’d have to pay 20% of that in tax (if you are a basic rate taxpayer), which is only £80.


This will change when new rules start next April, but until then an ISA is the only way to save tax-free. However, there are quite a few rules and options so it’s easy to get confused. Here are answers to three questions which should make it easier.

1. I’ve already got an ISA, can I open a new one?

There’s actually no limit to how many ISA accounts you can have. You could in theory have a different ISA for every tax year. The old ones will keep earning interest until you choose to withdraw or transfer the money to another ISA.

But there is a cap on how much you can save tax-free each year. The annual ISA allowance is £15,000 for the financial year 2014/15. From April 6th 2015, you will get a new allowance which increases to £15,240 for the 2015/16 tax year.

If the interest rate on your older ISA is still strong, there’s no reason to stop using it in a new tax year. But if the rate has dropped, paying more money into your old ISA account won’t earn you much interest and you’d be better off opening a new account.

The main point to remember is you can only pay into one Cash ISA each tax year.

2. Will I get taxed if I withdraw my money from an ISA?

First, don’t worry. You won’t get taxed on your savings – or any interest already earned on your savings - when you withdraw your money out of an ISA.

However you will have to pay tax on any future interest payments if the money is then placed into a normal savings account.

New rules from this autumn will make ISAs more flexible as you’ll be able to withdraw money and pay the same amount in without it affecting your annual allowance.

Until then, or if you want to move money from an old ISA, you also need to be careful as withdrawing the cash can eat up your allowance.

Say you have £5,000 in an ISA from last year but the interest rate is low and you can get a higher one in a different ISA. If you withdraw the money and then pay it into the new account, you’ll have used up £5,000 of your 2014/15 allowance straight away, meaning you can only save an extra £10,000 into your ISA this year.

When transferring money from one ISA to another make sure it allows “transfers in”. Then contact your new provider to manage the transfer. This maintains the tax free status of your savings without using any of your £15,000 allowance.

3. Which should I get – a Cash ISA or a high interest current account?

High interest rates are just one incentive high street banks are using to get you to open a current account with them.  Some are offering as much as 5% AER, much higher than even the best easy access ISA.

There are limitations though. First you will need to pay tax on your interest. So a 5% AER would really earn 4% for a basic rate payer. This changes in April 2016 when you’ll be able to save between £500 and £1,000 tax-free.

The interest rates may also be tiered, which means you earn less if your balance drops below certain thresholds. Most of these account have low limits on how much you can save and still earn interest.  

The banks may also require you to pay in a certain amount each month or have a few direct debits in place.

However, as long as you check that you can meet these conditions, then it might be possible to earn more interest from a current account than an ISA.

Are there any other questions you would like answering? Comment below or drop us an email at

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  • John / 22 April 2015

    I have ISA account but currently i am getting only .5% interest so which bank is giving better interest so i could transfer my ISA to better interest paying bank.

  • annette hibbert / 19 April 2015

    Children's isa, credit union closed down , children have about £300 each which I need to invest also two of the children have child tax from the government which I also need to transfer any advice please.

  • Farai / 19 April 2015

    It is a very good article. Simple and informative