Some of the best interest rates on the market are for accounts that reward savers for making regular monthly payments, rather than just depositing a large sum at the start. Taxable regular savings accounts are available, but if you'd like to make the most of your tax-free allowance, a regular saving ISA might offer higher interest payments. Understanding how they work and what features to look for will help you find the best regular saver ISA to suit you.
What is an ISA?
An ISA (Individual Savings Account) allows you to save up to a set amount each tax year without needing to pay income tax or Capital Gains Tax. This means you get to keep all of the interest you earn, rather than paying 20% of it to the taxman, or even 40% if you're a higher taxpayer.
A cash ISA works like a savings deposit account, although the maximum you're allowed to pay in during the 2016/17 tax year is currently £15,240. You can only pay into one Cash ISA per tax year, and if you don't use all of your allowance, you can't carry tfhis over to the next year.
Stocks and shares ISAs also exist, allowing you to invest up to this annual allowance minus any amount you've already put in to a cash ISA that year.
Why open an ISA?
The main perk of opening an ISA is that the interest you earn will be tax free so you get to keep the lot, but that doesn't mean they are always the best choice.
If the ISA rates you find are much lower than competing normal savings accounts, you could look elsewhere. Remember, you'll need to find the net rate of each account, which is the rate you get after tax has been deducted; for example, if you pay 20% tax, the net rate of an account that pays 3.75% would be 3%. Compare this to the rates of the ISAs you find, and if the ISAs offer a better return, they're worth investing in.
Our guide should answer any questions you might have about ISAs.
Why a regular savings ISA?
A regular saver will usually pay a fixed rate of interest over an agreed period as long as you pay into it once a month. The rates these accounts offer are often better than standard savings accounts and are especially useful if you want to save a little each month.
If you have a lump sum already saved and are attracted by the rates of a regular saver, you probably won't be able to deposit your whole amount immediately, so you'll have to set up a regular payment into the new ISA. Remember, this means that you'll only earn interest each day on the amount that's currently in the account, so you'll need to work out what will pay most; an account that will let you deposit the whole sum immediately may pay more interest if it only has a slightly lower rate.
What to look for from a regular saver ISA
Once you have decided that a regular savings cash ISA is the right account for you, look into the following features:
How you would like the interest paid
Interest is usually paid annually or monthly - many providers will offer you the choice, but not always, so if you have a preference, make sure you only consider the accounts that pay interest when you want it. You may also be able to choose if you want compound interest, which is added to increase your account balance, or if you would like it paid out to your bank account instead.
Pay close attention to the terms of your cash ISA saver, as it's likely that the interest rate offered will only be valid if you play by the rules. There will be a minimum and maximum amount you need to pay in each month, and if you miss a payment or deposit too much, you could end up losing the high interest rate. Strictness levels vary; some companies will allow a missed payment or two, whereas others will transfer you to their basic deposit account if you breach their terms, so check the small print carefully so you know what's required.
It's likely that restrictions will apply to withdrawals, as well as deposits. Again, the severity of the terms will vary: some will allow a specified number of withdrawals, others won't allow any without lowering your rate or imposing an interest penalty. If you think there's a chance you'll need access to your funds, choose an account that doesn't punish you for this.
Compare Regular savings cash ISAs
Once you've decided what you need your ISA for, narrow down the accounts that meet your requirements in our regular savings ISA comparison. You'll then be able to find which of these has the best rate; this is important as it will determine how much interest you're paid.
Also check how long the rate is guaranteed for; this will often be a year, after which it will revert to a lower rate. If so, remember to look for a new account once the higher rate expires; our guide explains what you need to know.