ISAs explained
What is an ISA?
Did you know...
The tax man gets an extra £500 million in tax as a result of people not making full use of their cash ISA allowance - that's £50 each.
Source: Nationwide research, 2012
An Individual Savings Account (ISA) is a tax-efficient way to save or invest. UK residents aged 16 and over can choose to save in a cash ISA or if they are 18 or over, a stocks and shares ISA or a combination of both. Parents or guardians could also open a Junior ISA for children under 18.
The interest on a cash ISA isn't taxed so all the interest you earn you keep. With a stocks and shares ISA, all gains are free from capital gains tax, you don't even need to declare your ISA investments to the tax man.
The beauty of ISAs is that they don’t end when the tax year does. You take it with you
into the new tax year meaning each year you get the tax benefits on the cumulative
amount. You can keep adding to your ISA and the sooner you do this in the new tax
year the more you maximise the tax benefits ISAs give you.
You can only invest with one cash ISA provider in each tax year and the same, or another stocks and shares provider.
Still confused about what an ISA is? Watch this video
What is the ISA limit?
Did you know...
With Nationwide you can split your cash ISA allowance between our full range of cash ISAs, for example save some in an ISA with instant access and some in a fixed term ISA.
Each tax year you have an ISA allowance, for tax year 2012/2013 (6 April 2012 until 5 April 2013) your allowance is £11,280. You can save up to £5,640 in a cash ISA with the remainder in a stocks and shares ISA, or, you can invest your full allowance in a stocks and shares ISA.
Still confused about ISA limits? Watch this video
Ways you could use your allowance
Take a look at the table below to see some examples of how you could split your full ISA 2012/2013 allowance between a cash ISA and a stocks and shares ISA.
| |
Total 2012/2013 ISA allowance |
Cash ISA allowance used |
Stocks & Shares ISA allowance remaining |
| Example 1 |
£11,280 |
£2,500 |
£8,780 |
| Example 2 |
£11,280 |
£4,000 |
£7,280 |
| Example 3 |
£11,280 |
£5,640 |
£5,640 |
| Example 4 |
£11,280 |
£0 |
£11,280 |
What types of ISA are available?
There are 3 types of ISA available, a cash ISA, a Stocks & Shares ISA and a Junior ISA, find out more below.
Still confused about what types of ISA are available? Watch this video
Cash ISAs are savings accounts where interest is paid tax free, you can currently save up to £5,640 each tax year in a cash ISA.
- Earn interest tax free
- Option to split your allowance between Nationwide's full range of cash ISA accounts, for example, save £2,500 in an ISA with instant access and your remaining £3,140 in a fixed term ISA
- Long term tax benefits - carry your previous tax years savings over each year and keep adding to them
- Choose from a range of fixed and variable rate accounts with various access options
- Available to UK residents aged 16 or over
- We've made seven promises to our savers designed to help them make the most of their savings, read our Savings Promises
Why invest in a Stocks & Shares ISA?
In today's low interest rate environment, you may be wondering how to try and make your money work harder.
Here and just a few good reasons to consider investing in a Stocks & Shares ISA:
- If you are prepared to combine investing and saving, you could get protection against the effect of inflation on your money
- Any growth made on stocks and shares ISA is protected from capital gains tax
- You could save time on your tax return as you don’t have to declare any investments held in a Stocks & Shares ISA
Find out more about the benefits of investing
Investing in a Stocks & Shares ISA through Nationwide
Providing you're comfortable with both investing for five years or more and the increased risk associated with investments, they offer greater potential returns than traditional savings. Nationwide has a carefully selected range of investment funds provided through Legal & General, all of which can be invested tax efficiently as a Stocks & Shares ISA so you can use up to your full ISA allowance. Find out more about how Nationwide selects funds, or for help understanding you attitude to risk, answer the attitude to risk questionnaire.
The value of your investments can go down as well as up, so you could get back less than you invested.
Still confused about Stocks & Shares ISAs? Watch this video
Junior ISAs were introduced by the government in November 2011. A Junior ISA is a tax efficient way to save for your child’s future and is designed for children under the age of 18 who do not hold a Child Trust Fund voucher. The Junior ISA encourages both parents and children to save, with the aim of ensuring that children have some money behind them on their 18th birthday to help them make the transition into adult life. Nationwide currently offer a Junior cash ISA for children.
The current annual Junior ISA limit for tax year 2012/2013 is £3,600.
Tax-free is the contractual rate of interest payable where interest is exempt from income tax.
The tax information provided is based on our current understanding of current law and HM Revenue & Customs practice which can change.