Cash ISAs allow you to save for the future in a tax-free account. Adding the easy access feature to that means that you’ll also have ready access to your funds. Though expect to see lower interest rates in exchange for that flexibility.
What is an easy access ISA?
An easy access ISA (individual savings account) is a type of cash ISA that allows savers to have easy access to their cash.
Breaking it down into more detail, a cash ISA is an account where the interest you earn on your savings is not taxed. The easy access version of this type of account typically allows unlimited further deposits. It also usually allows instant or easy access to your cash. Withdrawals and transfers can typically be made without penalty, but this is not the case for all accounts.
You can deposit up to your ISA allowance (£20,000 for tax year 2022/23) in an easy access ISA. Or you could deposit some of your allowance in an easy access ISA, some into a stocks and shares ISA and some in an innovative finance ISA. The key thing to remember is that you are only able to pay into one cash ISA a year, so you cannot pay into an easy access cash ISA and fixed rate cash ISA during the same tax year.
What are the benefits of an easy access ISA?
A lot of the benefits of an easy access ISA revolve around its tax-free savings status. But there are also key benefits in the way you access your money and the way you can make deposits.
1. An easy access ISA allows you to dip into your savings whenever you like. So if you are looking to shield your savings from tax but also to be able to access it when you need to, an easy access ISA is a good option. Withdrawals and transfers are typically made without penalty. However, you may find the odd easy access ISA has restrictions on how many withdrawals you can make during the tax year.
2. You can benefit from unlimited deposits with an easy access ISA. This is the type of account that may suit someone who regularly adds to their savings. There is no requirement to make a large deposit at the beginning. Instead, you can slowly add to it over time. One thing to be aware of, though, is that if you withdraw money from your easy access ISA and then add to it later on, you may find you have used a portion of your ISA allowance by doing so.
3. You stand to gain from all the perks of a cash ISA with an easy access ISA. While the introduction of the personal savings allowance means that ISAs are less relevant than they once were, the benefits of an ISA are largely cumulative. Because of the ability to transfer your ISA, you are able to shelter ever-larger sums from tax year after year.
4. If you are an additional rate taxpayer, you don’t qualify for a personal savings allowance. Depositing your money into an easy access cash ISA therefore means that you can shield your interest earnings from tax, while also having flexible access to your cash.
What is the difference between an easy access ISA and other cash ISAs?
There are several types of cash ISA available. You can have multiple cash ISAs, but you can only pay money into one of them for the current tax year. It is therefore best to consider what type suits your personal situation.
The main difference with an easy access ISA compared with other types, such as a fixed rate ISA or a notice ISA, is the ability to access your money.
As mentioned, an easy access ISA typically doesn’t have penalties attached to withdrawals from the account. And there are no restrictions on how many deposits you can make during the tax year, as long as they don’t exceed your ISA allowance.
A fixed rate ISA or a notice ISA locks your money away for a period of time. It either does not allow access to your money during that term, or it charges you a penalty if you withdraw money without giving notice.
Another key difference is interest rates. An easy access ISA tends to have a lower rate of interest than a fixed rate or notice ISA. And the interest rates are usually variable.
Are easy access ISA rates always variable?
Easy access cash ISA rates tend to be variable. This means that they can go up or down at any time. So you are not always sure how much interest you can earn in a year.
One thing to look out for when comparing easy access cash ISA rates is whether or not they include an introductory bonus. Some providers include a bonus of 1% for a period of 12 months, for example. However, at the end of this period, the rate will return to the account’s basic rate. This may be when you need to look to transfer to another ISA to achieve a more favourable rate.
Can you move an easy access ISA to another ISA?
You can move or transfer your ISA from one provider to another at any time. And you are also able to transfer your savings from one type of cash ISA to a different type of cash ISA.
Therefore, if you start depositing in an easy access cash ISA at the start of the tax year but decide to switch to a fixed rate cash ISA halfway through, it is possible to do so.
However, if you want to transfer the money you’ve invested in an ISA during the current tax year, you must transfer all of it. This is because you are only allowed to pay into one cash ISA each year.
You must also make sure that you transfer your ISA in a specific way. It needs to be done electronically using a transfer form given to you by your new ISA provider. If you just withdraw the cash and reinvest it in the new ISA, it could lose its tax-free status and you could use up a portion of your ISA allowance.
Are my savings protected in an easy access ISA?
As an easy access cash ISA is a savings account, it is protected by the Financial Services Compensation Scheme (FSCS). Being covered by the FSCS means that savings up to £85,000 are protected if the financial institution providing the ISA fails.
It is important to note that this is £85,000 per financial institution. So you could have multiple easy access ISAs with different banks and, as long as you do not exceed the £85,000 threshold with any one bank, your money will be protected.
An easy access ISA is a type of cash ISA that allows savers easy access to their cash. It is a savings account where the interest you earn on your savings is not taxed. You can typically make as many deposits as you want. Withdrawals and transfers are usually allowed without penalty, although this depends on the account. Interest rates with an easy access ISA tend to be lower than those of a fixed rate ISA or notice ISA.
Easy access ISA rates are usually variable. They can go up or down at any time. You may also find that the headline interest rate includes an introductory bonus, which will expire after 12 months.
Yes, you can move an easy access ISA to another type of ISA. You can transfer your ISA from one provider to another at any time. And you are able to transfer your savings to a different type of ISA or the same type of ISA.
However, if you want to transfer money you’ve invested in an ISA during the current year, you must transfer all of it. This is because you are only allowed to pay into one cash ISA during the current tax year.