Interactive Investor expert on decision to raise interest rates
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Virgin Money currently offers the highest interest rate for an easy access ISA, with its Easy Access Cash ISA Exclusive Issue 2, paying three percent. Interest is calculated on a daily basis and paid into the account once a year.
The interest is paid into the account on the final working day of December each year, with the possibility the interest rate may change.
Customers will be notified at least two months before the interest rate changes to give them time to prepare.
With the interest rate as it currently stands, if a person deposited £1,000, after a year their balance would increase to £1,030.
An account can be opened online or in a Virgin Money branch. A person needs to create a Virgin Money current account to open an ISA.
An account can also be opened by customers with a current account with Clydesdale Bank or Yorkshire Bank, apart from those with an Essential Current Account or with any account opened with the former bank Northern Rock.
There is no minimum amount that must be deposited to open the account. A person must be a UK resident aged 16 or over to open the ISA account.
A person can pay into their account by cash in a branch, by cheque, via electronic transfer, or by transferring in an existing ISA from another provider. Money can also be transferred from another Virgin Money account into the ISA.
The account can be managed in writing, in store over the phone, or using internet or mobile banking.
A person can withdraw funds whenever they want with no need to give notice to Virgin Money. Money can usually be taken out and put back without affecting a person’s £20,000 annual ISA allowance.
A saver will need to replace any money they take out in the same tax year for it to not count towards their allowance.
Money withdrawn from the ISA will no longer get the tax exemptions that ISA funds benefit from.
There is the option to cancel the account within 14 days of opening it, and a person will get their money back with interest.
Martin Lewis, founder of MoneySavingExpert, warned ISA savers they could be missing out on better interest rates.
He urged people in his Money Tips email to use his cash ISA check up to see if they can get a better deal.
The financial journalist said: “For those with larger savings, as a cash ISA is just a savings account you can put £20,000 in per tax year where interest is never taxed – and doesn’t count towards the PSA [Personal Savings Allowance] – then for saving that’d have tax taken off, they’re a winner (so you could have normal savings for some of your money, cash ISAs for the rest).
“It can also be worthwhile having some in cash ISAs, if while you don’t pay tax on savings now, you would if interest rates rose.”
The PSA allows an individual to earn £1,000 of interest on any savings in a year and not pay tax on the amount, if they are on the basic rate of income tax.
The allowance goes down to £500 for those on the higher rate of income tax and to nothing for those on the additional rate.
Mr Lewis said people should shop around for the best cash ISA deal as many accounts currently pay a very small interest rate, often under one percent.
He explained people moving to a new provider can usually state in the application form they want to transfer over savings from an existing cash ISA.
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