Every April, savers are given a fresh ISA (Individual Savings Account) allowance that qualifies for tax-free interest.
For the new tax year, which starts on April 6, 2024, and ends on April 5, 2025, the limit is £20,000.
Money placed in an ISA can be transferred between accounts.These will be savings accounts, where cash deposits earn interest, or accounts investing in stocks and shares.
It is always worth considering opening an ISA to shield money away from the taxman.
Importantly, ISA rules state you can only contribute to one ISA per tax year. You can also transfer an existing ISA for better returns.
What is the value of an ISA?
Rising interest rates over the past year, largely driven by the Bank of England, have seen strong returns on savings invested in cash savings ISAs.
The best buy easy-access rates on a tax-free account has been paying more than 5 percent, which provides a useful safety net when inflation is spiking upwards.
Why put money in an ISA rather than an ordinary savings account?
Interest earned in an ISA is protected against having to pay tax if the saver’s annual returns are above their Personal Savings Allowance (PSA).
The PSA tax kicks in where any interest rate returns are more than £1,000 for a basic rate taxpayer and more than £500 for a top rate taxpayer. It is charged at 20 percent for a basic rate taxpayer and 40 percent for a top rate taxpayer.
There is no PSA or tax to pay if money is saved in an ISA rather than a standard savings account. This Is Money has highlighted five ISAs that could be a winner for 2024.
Five good value ISAs
Plum, easy-access – 5.17 percent
Cost to open: £100
Transfers in: Yes
Flexible: No
Key fact: Can only be opened through Plum’s app. It is – currently – the best overall rate for an easy-access cash Isa and includes a bonus rate of 0.86 for the first 12 months.
Kent Reliance, easy-access – 5.01 percent
Cost to open: £1,000
Transfers in: Yes
Flexible: No
Key facts: It can be opened online or in a Kent Reliance branch.
Charter Savings Bank, one-year fix – 5.05 percent
Cost to open: £5,000
Transfers in: Yes
Flexible: No
Key facts: Can only be opened and managed online through Charter Savings Bank’s website. There is an option to receive interest monthly or annually.
Close Brothers Savings, two-year fix – 4.7 percent
Cost to open: £10,000
Transfers in: Yes
Flexible: No
Key facts: Account can only be opened online, on Close Brothers Savings’ website.
Moneybox, Cash lifetime Isa – 4.4 percent
Cost to open: £1
Transfers in: Yes
Flexible: No
Key facts: For those aged between 18-39 who are either saving up to buy their first home or towards retirement, this is the best paying cash ISA deal on the market.
Save up to £4,000 each tax year and get a 25 percent government bonus. The deal is only available via its app.
This deal is available through Moneybox app. The rate includes a 0.75 percent fixed bonus for the first year.
