In April 2014 the government caused a stir when it announced the scrapping of Individual Saving Accounts (ISAs) and replaced them with New Individual Savings Accounts (NISAs). NISAs were introduced on 1 July 2014.

What is an ISA/NISA?

There’s always been a lot of confusion around ISAs, but in the simplest terms an ISA is:

“A savings account where you don’t pay tax on the interest.”

The cash ISA is dead, long live the NISA

Under the previous rules ISAs were split into Cash ISAs and Stocks and Shares ISAs. Individuals were allowed to save up to £11,520 a year tax free into ISAs, but only half of this (£5,760) could be in cash, the rest could be made up from stocks and shares.

Three times NISA

Under the new rules individuals are allowed to save £15,000 a year tax free with no limitation on how much of this new allowance can be in cash. All existing ISAs automatically became NISAs on 1 July allowing current ISA holders to top up their accounts up to the £15,000 limit.

NISAs made easy

NISAs are not complicated. Each year, everyone over the age of 16 has a NISA allowance of £15,000. It’s up to the individual how they use this, or even whether they use it at all. Each (tax) year the slate is wiped clean, and you’re allowed to save up £15,000 tax free again.

The good news is that the once the money is in a NISA it’s tax free, and stays tax free while it’s there. So for example if you put £14,000 into a NISA at the start of the 2015 tax year, then a further £6,000 into the account at the start of the 2016 tax year, you’d have £20,000 sitting in your NISA earning you interest that the taxman can’t touch. You wouldn’t have maxed out your yearly allowance in either year but that doesn’t matter.

Do banks run a credit check when applying for an ISA?
No. As there are not credit facilities offered or available there is no credit check for an ISA, or a savings account for that matter. Instead the bank will do an electronic money laundering check. This uses the credit reference agencies verify identification. This leaves a note on the file so you would see it when one is done but it is not a credit check and doesn’t go against you as one.

What happens if I don’t use all of my allowance in a given year?
Simply put, nothing. It’s up to you how much or how little you save. The next year you’re allowance is reset, and you’re allow to deposit up to £15,000 again.

What if I need access to my money?
Ideally savings should be just that. Savings. Of course there are circumstances when you’re going to access to the cash. That’s no problem, there’s a range of instant access accounts available, allowing you to get at your money whenever you need. It’s worth pointing out though that withdrawals don’t have any effect on your £15,000 allowance, so if for example you’ve paid £15,000 into your ISA, then withdraw £5,000 part way through the year, you can’t put that £5,000 back in, as you’ve already paid in the maximum amount.

I want to start a savings account for my children, can I use an ISA?
Certainly. There are special Juniour Individual Savings Accounts (JISA) for this very purpose. You can save up to £4,000 a year into a JISA and it can be divided any way you like – so you can put it all in cash or all in stocks & shares (or any mix of the two).

Your child can’t touch the money until they turn 18 years old – The account is held in the child’s name but is opened and managed by you. From the age of 16 the child can take control of the ISA, but can’t touch the cash until 18.

The best cash ISAs

There’s no best cash ISA, it all depends on your circumstances and how you save. With that in mind we’ve rounded up our favourite instant access ISAs.

Instant access ISAs

BM Savings
Rate: 1.55% AER incl 1.05% bonus for a year
Min deposit: £1
Interest paid: Annually or monthly
Allows ISA transfers? Yes
Transfer out penalties? No
Access: Postal
Safety: Shared £85,000 UK protection with Bank of Scotland

Rate: 1.5% variable AER
Min deposit: £1
Interest paid: Annually on 30 Sept
Allows ISA transfers? Yes
Transfer out penalties? No
Access: Online or branch
Safety: Shared £85,000 UK protection

Virgin Money
Rate: 1.5% variable AER
Min deposit: £1
Interest paid: Monthly or annually
Allows previous NISA transfers? Yes
Transfer out penalties? No
Access: Online
Safety: Full £85,000 UK protection

In some instances regular savings accounts earn more interest that ISA accounts, but then of course your earnings aren’t tax free.

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