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    ISAs made simple

    What is an ISA?
    ISA stands for Individual Savings Account.

    There are two types of ISA:

    • Cash ISA – essentially the same as a normal savings account except the interest is tax-free*. There are many types of cash ISA accounts such as instant access, notice or fixed rate.
    • Stock & shares ISA – suitable if you can leave your money alone for at least five years. You can put your money into a range of investments such as unit trusts, open-ended investment companies (OIECS – similar to unit trusts) and investment trusts as well as government and corporate bonds. This means the value of your investment can down as well as up.

    Why should I have an ISA?

    With an ISA you don’t have to pay tax* on the interest you earn. If you pay income tax, a cash ISA would probably be the best home for your first £5,640 of savings.

  • Each tax year, which runs from 6 April to the following 5 April, there is a limit on how much money you can put into an ISA. This is called your ‘ISA allowance’.

    For the 2012/13 tax year, your ‘ISA allowance’ is £11,280.

    You can choose how to divide your annual ISA allowance between cash and stocks & shares ISAs but there are some limits.

    If you want to use your full £11,280 allowance, you have 3 options:

    • £5,640 in a cash ISA (under the ISA rules you cannot save any more of your allowance in a cash ISA) and the remaining £5,640 in a stocks & shares ISA
    • Up to £5,640 in a cash ISA and the remaining amount in a stocks & shares ISA e.g. £2,000 in a cash ISA and £9,280 in a stocks & shares ISA
    • £11,280 in a stocks & shares ISA

    If you don’t have the full £11,280, you can save a smaller amount up to the limits shown above, but remember you can only put a maximum of £5,640 into a cash ISA.

    ISAs are only available to UK residents or people who are resident in the UK for tax purposes.
    • You must be aged 16 or over to hold a cash ISA
    • You must be aged 18 or over to hold a stocks and shares ISA
    • ISAs are individual – you can’t open an ISA in joint names or on behalf of anyone else. However, both you and your spouse can hold separate ISAs

    You can only make payments into one cash ISA and one stocks and shares ISA each tax year – the amount you pay in is called your ‘subscription’.

    If you have opened accounts with different ISA providers in previous tax years, you can still keep these open but you will not be able to pay any more money into them if you are making payments into a new ISA.

  • You can transfer money that you have saved in previous tax years and from the current tax year into a new ISA without affecting its tax-free status. You can also switch your ISA from one provider to another whenever you want.

    To make a transfer, you must not close one ISA to open another as this will affect your tax-free status. The transfer has to be arranged directly between the two ISA providers and you must ask your new ISA provider to organise this for you. Your current ISA manager cannot prevent you transferring but they may charge you if you do switch. It’s worth noting:

    • If you hold a stocks & shares ISA, you can only switch to another stocks & shares ISA
    • If you hold a cash ISA, you can transfer to another cash ISA or into a stocks & shares ISA
    • You must transfer all of the money in your current tax year's ISA, you can’t leave some in the old account
    • You can, if you wish, also transfer some, or all, of the money you put into this ISA in previous years without affecting your current ISA allowance

    The transfer of ISAs from one provider to another should be completed within 15 days.

    • Days 1-2
      • Ask your new provider to start the transfer process. You will need to complete an ISA Transfer Authority form and/or a new ISA application form. Once received, your new provider will begin processing the transfer application form
      • Your new provider will send the application form on to your old provider
    • Days 2-14
      • Your old provider will process your application form and send the transfer funds to your new provider. If this doesn’t happen, your new provider will chase on your behalf
    • Day 15
      • Your new provider will credit the funds to your new account and you can start to earn interest on the transferred balance from the date on the transfer cheque

    You can put money in and take money out of an ISA whenever you wish (if the terms of your account allow), but try not to dip into your ISA savings unless absolutely necessary. This is because if you take money out it can’t be put back and you will lose the tax-free status on it.

    Example 1

    • You pay in £4,000 on May 1
    • On September 30, you withdraw £2,000, leaving a balance of £2,000
    • In December, you decide to replace the money in your ISA but you are only allowed to pay in £1,640 as you already paid in £4,000 when you first opened the ISA so paying more than £1,640 would take you over your annual limit

    Example 2

    • You pay in £5,640 on May 1
    • On September 30, you withdraw £2,000
    • Even though you now only have a balance of £3,640 in your current ISA, you are not allowed to reinvest the £2,000 as you have already reached your limit for this year

  • What ISA accounts does The Nottingham offer?

    Click here to find out about our latest cash ISA accounts.

    If you are interested in investing in a stocks & shares ISA click here

    *Interest will be paid free of UK income tax. The tax treatment of ISAs may change.