What is an ISA and how does it work?

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By Beehive Money

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What’s an ISA?

It’s an Individual Savings Account created by the Government (they also set the rules for these accounts) that gives you tax-free interest – it’s as simple as that. An ISA is a great choice when you’re looking to make your savings go even further, as you can get more for your money. There are different types of ISA, so it’s simply a case of finding the best one for you.

What types of ISA are there?

There are four main types. You can read more about them all on the website too. These are:

Cash ISA – similar to a typical savings account, except the interest doesn’t count towards your Personal Savings Allowance. Within the Cash ISA umbrella, you can also choose between instant access, notice and fixed rate.

Junior ISA – we don’t currently offer this type of ISA at Beehive, but it’s worth knowing how younger savers can manage their money. Made with under-18s in mind, this is a long-term, tax-free savings account. Under-16s will need a parent or guardian to open their account, while over-16s can open the account themselves. 

Lifetime ISA – also known as a ‘LISA’, this could be ideal for those aged 18-39, who are looking to buy their first home or put away extra money for their retirement. The Government tops up what you put in by paying you a 25% bonus on your savings, capped at £1,000 a year, until you turn 50. After this, you'll still get the interest on your savings. You can then use your LISA at 60 for your retirement, or at any age when buying your first home. Full details of our LISA can be found here.

Stocks and Shares ISA – although we don’t offer this at Beehive, this can be a good option for those who want to save long-term, as any money you pay in is locked away for at least five years. This type of ISA covers unit trusts, open-ended investment companies, investment trusts and both Government and corporate bonds. The value of the money can go up and down, and you’ll need to be 18 or over to open this type of account. We suggest a chat with a financial adviser if you’re interested.

Who can open an ISA?

You can only open an ISA for yourself – you won’t be able to set one up on someone else’s behalf. However, with Junior ISAs, children under 16 need a parent or guardian to set up their account. For Cash ISAs, you’ll need to be a UK resident aged 16 or over, while for Stocks and Shares ISAs, you’ll need to be 18 or over.

How many ISAs can you have?

As many as you like – but you’ll only be able to open one of each type of ISA account each tax year (which runs from 6th April to 5th April) apart from the Lifetime ISA - you can only have one of these types of accounts.

What’s an ISA allowance?

For over 18s, there’s a £20,000 limit on how much you can add to your ISA each tax year, however there are also limits set on different ISA types. For example, this tax year, a LISA has a limit of £4,000. If you have several ISAs, you can split the £20,000 allowance between your accounts. 

For Junior ISA accounts, in the current tax year, the savings limit for Junior ISAs is £9,000. We don’t offer these types of accounts at Beehive Money currently.

Can I withdraw money from my ISA?

It depends on the type of ISA you have, and bear in mind that some accounts might charge you to withdraw money. For a LISA, you’ll be charged 25% by the Government if you withdraw money for pretty much any reason other than buying a first home or starting retirement, so you could get back less than you paid in. If you’re unsure about the terms of your Beehive ISA, our Customer Advocates are happy to help.

Can I withdraw and put the money back later? 

That’s a great question. Not always without losing your allowance, but when you can, that’s known as a flexible ISA. When you withdraw money, it won’t count towards your ISA allowance – so if you paid in £15,000 and took out £5,000, you’d still be able to pay in up to £10,000 (to meet the £20,000 allowance). If you don’t have a flexible ISA, then any money you take out still counts towards the £20,000 allowance (so, to stick to the same example, if you paid in £15,000 and withdrew £5,000, you’d only be able to pay in up to £5,000). Of course, this is per tax year.

Can I change my provider? 

Yes, you can – and there are some great benefits if you choose to join Beehive – easy, ethical savings. But, there are a few things to note:

  • You’ll need to ask your provider to manage the switch as this is how the process of transferring works
  • If you close your ISA, it might affect your tax-free status.
  • Some ISAs will involve paying a charge or fee when you transfer to another provider so it’s always a good idea to check this before making the switch.
  • If you’re simply moving money into the same type of ISA with a different provider, you’ll need to transfer everything you’ve deposited in the current tax year, but you can leave money from previous tax years. If you move money from a previous tax year, it won’t affect your current ISA allowance.
  •  If you transfer from a Stocks and Shares ISA to a Cash ISA, some investments may not be transferable – again, it’s a good idea to talk to your provider about this.

How long will it take to transfer my Cash ISA?

It usually takes around 15 days, but can be up to 30 days if you’re moving money from a Stocks and Shares ISA into a Cash ISA.

What do I do next?

If you’d like to set up an ISA, head to the Beehive Money app. If you need help applying, get in touch with our Customer Advocates.

Reviewing your savings

We always want the best for our members, which is why we recommend that you should regularly review any savings you have; either with us or elsewhere. Ensure that you're still getting competitive rates (where you aren't locked into a fixed term product) and that your accounts continue to help you reach your savings goals. 

See our full range of savings accounts, compare interest rates and find the right product for you.

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