Whether you have a cash ISA or are thinking of getting one, you should consider if it's still a good place for your money. Here is how to work out if ISAs are still worth saving into.
You don't need to save into an ISA to earn interest tax free. Thanks to the introduction of the Personal Savings Allowance, most basic rate taxpayers will not have to pay tax on the interest they earn until it exceeds £5000.
Your ISA allowance for the 2020/21 tax year is £20,000, meaning you can still save tax free even if you do not qualify for a Personal Savings Allowance.
No, ISAs do not always pay the best rates. Historically, to beat an ISA you would need to find a net interest rate on a savings account that was higher than an ISA's gross interest rate.
Net interest represents the rate you get on your savings after tax has been deducted. The gross rate is what you get paid before tax.
Now, all banks and building societies use gross interest to advertise their savings accounts. This means you can compare ISAs to other accounts on a like-for-like basis.
Although you have more tax free savings options available to you, ISAs are still used to create innovative accounts to help you in the future:
Lifetime ISA: Like the old Help to Buy ISA, it gives you a 25% bonus towards buying your first home, however you can also use it to save up towards your retirement.
Junior ISA: This is a special ISA you can open on behalf of your child. It has its own ISA allowance (£4,368), and cannot be touched until your child turns 18 years old.
If you're married or in a civil partnership and die, your partner can add the value of your ISA into one of their own, without paying any tax.
For example, if you have £50,000 in an ISA when you die, your partner can add up to £50,000 into their ISA, in addition to their ISA allowance for that tax year.
If you're prepared to put your savings at risk in hope of a greater return, and still want to use your ISA allowance, consider one of the following:
Also known as a stocks and shares ISA, lets you invest with your ISA allowance so any return you make is tax free.
Also known as a P2P ISA, lets you use your ISA allowance to invest in peer to peer lending.
Your cannot use the Personal Savings Allowance with investments or P2P lending, but you can use your ISA allowance to make them tax free.
Speak to an independent financial adviser if you are unsure if an investment is right for you.