Whether a cash ISA is the right option depends on how much money you have to save, as well as your income tax threshold.
Basic rate taxpayers can earn up to £1,000 interest tax-free a year, while higher rate taxpayers get £500 a year tax free.
If you think you will earn more interest than your tax-free allowance, then an ISA will protect you from paying income tax on interest from that account.
On current rates, a basic rate taxpayer would need to have savings of more than £21,000 a year to exceed their personal savings allowance and become liable for tax on interest.
So if you have less than this, then focus on finding the best rate and do not worry about whether it is an ISA or not.
If you have more than this then you should put your cash in an ISA.
If your income is nearing a higher rate threshold for tax, then any savings over £10,000 would be better off in an ISA.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “If the Government decides to cut the personal savings allowance, you’ll be grateful for your ISA.
“However, average earners with modest savings might be reasonably sure they won’t pay tax on their savings this year.
“For now, savers with only small nest eggs can earn more interest in a fixed non-ISA.
“You should also look at moving your ISA account to one paying higher interest, as there is £54billion sitting in accounts paying less than 2%.”
Sarah added: “Money in cash ISAs is particularly ‘sticky’, so there’s a real risk people put money into one, and don’t keep an eye on the rate.
“It can mean the rate is gradually cut over time, until you’re getting a miserable return.
“There are some great rates around at the moment, so a switch can be particularly rewarding.”
Transferring your Cash ISA to a new provider is generally straightforward. Your new ISA provider will handle the entire process.
Check with both your current and new providers about any potential transfer fees or penalties. Once you’ve chosen a new ISA, apply for it with the new provider.
Cash ISA transfers usually take up to 15 working days. However, it can sometimes take longer, so it’s best to allow up to 30 days.
