Our ISA Guide
Everything you need to know
Tax efficient savings
Our comprehensive guide
What is an ISA and who can have one?
An ISA is a tax efficient way to save and stands for Individual Savings Account. An ISA lets you pay little or no tax on the interest your savings and investments make.
There are two main types of ISA:
- Cash ISAs, which are classed as tax-free (i.e. you are not taxed on the interest earned on UK income)
- Stocks and shares ISAs, which are classed as tax efficient.
Paying money into an ISA:
Paying money into an ISA is called a subscription. You can subscribe to one cash ISA and one stocks and shares ISA in every tax year, and there’s a maximum allowance you can pay into each one.
ISAs are a good idea whatever your savings goal. With certain types of cash ISAs, you have instant access to your money, making it a flexible way to plan your finances.
Having an ISA is also a great way to save tax efficiently as an additional part of your long term financial planning. Stocks and shares ISAs are intended as a medium to long-term investment which means they should be held for at least 5 years.
It’s important to remember that ISA allowance limits apply to everyone on an individual basis, so if you’re married or in a relationship, you can both hold your own ISA, each with the full allowance.
To subscribe to an ISA:
- You must be aged 16 or over to hold a cash ISA, or 18 or over to hold a stocks and shares ISA
- You must be resident in the UK
- You can only subscribe to one cash ISA in a tax year, which runs from 6 April in one year to 5 April the next year
- You can subscribe to one cash ISA and one stocks and shares ISA in a tax year, but there are limits to how much you can save in each ISA – see the following section ‘How much can I put into an ISA’
How much can I put into an ISA?
As ISA savings are tax efficient, there’s a limit on the amount you can put in. This limit is aligned to the tax year which runs from 6th April one year until 5th April the following year.
The overall limit for 2015/2016 tax year is £15,240. With this limit you can save:
Up to £15,240 in a cash ISA
Up to £15,240 in a stocks & shares ISA.
Split your allowance of £15,240 between one cash ISA and one stocks & shares ISA as you choose.
If you withdraw money from your ISA, you cannot reinvest it in the same tax year if your total deposits will exceed your yearly allowance.
|Your cash ISA yearly limit||£15,240|
|You pay into your cash ISA||£11,240|
|Your remaining tax-free allowance is||£4,000|
|You then make a withdrawal of||£500|
|Your remaining tax-free allowance is still||£4,000|
|Overall possible saving by end of tax year||£14,740|
Choosing an ISA
Cash ISAs can come in two forms:
- Variable Rate ISAs, which offer rates that can move up and down, and normally offer instant access to your money or a short notice period
- Fixed Rate ISAs, where the rate is fixed for a period of time, and conditions often apply when accessing your money early
Your choice of stocks and shares ISA
You can choose from two types of stocks and shares ISA:
- Self-Select ISAs, where you choose what you want to invest in
- Managed ISAs, where a team of experts manage your investments for you
With stocks and shares ISAs, the value of your investment and any income you may receive can go down as well as up and you may not get back your original investment.
What happens in the future to my cash ISA?
Making future subscriptions
You can subscribe to a fixed rate cash ISA for a single tax year's allowance, but it can be fixed for a longer term, sometimes up to five years. In the next tax year, you can then open a new cash ISA that can either be fixed rate or variable rate.
You can keep a variable rate cash ISA open year after year, paying into them in subsequent tax-years, up to your yearly allowance. However, if an entire tax-year goes by without a deposit being made into your cash ISA, you cannot make any further payments into it until you have reactivated your account.
How to reactivate a cash ISA
To reactivate your cash ISA and carry on saving into it, you simply need to complete a reactivation form. We’ve made this really easy. You simply fill it in a reactivation form, send it to us and your ISA will be reactivated for you.
Transferring a cash ISA
You can only have one cash ISA per tax year. If you want to move your current or previous cash ISA balances between providers, there’s a transfer process that safeguards your tax-free entitlement.
Some cash ISA transfers can take up to 15 working days to process, and your new ISA provider will start to pay your interest from day 16 if the transfer process is not complete within this period. This allows you to start earning interest from your new cash ISA account faster.
For more information on the transfer timelines, the British Banking Association has produced the following guide:
Transferring a stocks & shares ISA to a cash ISA
From 1st July 2014, as part of the New ISA changes, you may now transfer from a stocks and shares ISA to a cash ISA.
As with cash ISA transfers if you want to move current or previous tax years balances there’s a transfer process that safeguards your tax efficient entitlement.
Transfers from stocks and shares ISAs to cash ISA take up to 30 calendar days to be completed and your existing stocks and shares ISA provider will sell your investments and send the cash to your new cash ISA provider. Your new cash ISA provider will then apply the cash to your account, keeping it within the ISA wrapper.
What to do next
If you already subscribe to an ISA, you can continue saving in your existing ISA in the new tax year, or you can open a new ISA. You can only subscribe to one cash ISA per tax year. Don’t forget the tax year ends on 5 April – make sure you take advantage of this years’ allowance before it’s too late.
You will normally need the following information when setting up an ISA:
- Your National Insurance number
- One form of evidence of your identity (a current passport, full UK driving licence, a benefit book or a UK armed forces identity card)
- One form of evidence of your address (an original gas, electricity, phone or council tax bill, an original bank or building society statement)
All documents should be the most recent you have, and from within the last six months.
ISAs made clear
Our ISA guide explains everything you need to know about ISAs and tax-efficient saving.
Protecting your money
Your eligible deposits with RBS are protected up to a total of £85,000 by the Financial Services Compensation Scheme, the UK’s deposit protection scheme. This limit is applied to the total of any deposits you have with the following: The Royal Bank of Scotland, Direct Line, the One Account, Child & Co, Drummonds and Holt's. Any total deposits you hold above the £85,000 limit between these brands are not covered.
Please note that the cover under the FSCS will reduce to £75,000 from 1 January 2016.