Mini Cash ISA (Individual Savings Account)
Cash ISA's allow you to invest up to £3,600 per Year into a Savings Account which earns you Tax Free interest
There are different types of Cash Saving ISAs you are offered and when choosing an ISA you should be aware of these:
Fixed Term Interest Rate ISA
Definition - A Fixed Term Interest Rate ISA is a Savings Account which gives you the stated Interest fixed (so unchanged) for the term stated
Example 1 - Invest £3,600 in a 1 Year 5% Fixed Interest Rate ISA at the begining of the term and receive £3150 after 1 Year
Calculation - 3,600 (Initial Investment) + 150 (5% of the investment) = £3750
- Remember that the interest rate of this ISA will not change unless stated for the entire term
- Check to see how long the term is, as you may not be able to make a withdrawl during this term, and if you do you may be liable to a penalty charge, which can often be the interest you would have accrued at the end of the term.
- Check whether you are able to Transfer funds into another ISA at the end of this term, as you might have to close the account and take the money at the end of the term, however if you want to continue saving after this period it is much more beneficial to keep your savings in an ISA so you can continue to benefit from Tax Free Savings
Maximum monthly deposit Mini Cash ISA
Definition - A Mini Cash ISA that only allows you to desposit a maximum amount each month usually your Maximum Cash ISA contribution(£3,600)divided by 12(£250)
Example 2 - Invest £250 each month for 1 Year at 10% Compound Interest Rate. And you will have £3740.81 after 1 Year
Calculation - £3,600 (Total Investment) + 140.81 (10% Compound Interest) = £3740.81 .Actual annual Interest 4.69%
- You can see from this example that although the interest rate is 10%, because you cannot deposit more than 1\12th of your allowance each month, the actual annual interest rate is only 4.69%, and you result is you will have less money at the end of the year than if you invested your full allowance at the beginning of the year into a Fixed Interest Term Rate ISA.
- Notice Periods - Some Cash ISA's allow you instant access to your Funds if required, whilst others allow you only one withdrawal a year, or require you to give a notice period, please think about whether you might need funds instantly, or are in a position where you can give notice and be able to wait before you receive funds