ISA stands for Individual Saving Account. These UK saving accounts are an alternative to the standard saving accounts. Overall, the ISA accounts have a number of advantages compared to them, although there are also some limitations of the investment.
The main difference between ISAs and more standard saving accounts is that ISAs are tax-free investments. As such, there is no tax deduction from the interest returned. This is perhaps the most notable advantage of the ISA accounts as without any additional tax their interest rates are usually higher than saving account net interest.
ISA accounts can come in various shapes and sizes, and their interest rates can be better than even the quoted gross interest rates of standard saving accounts. Online ISAs usually have higher than average interest rates. Then there fixed rate ISA accounts which also have higher than average interest rates for more limited periods.
A number of UK ISAs can also be easy access saving accounts. As such, there are no withdrawal limitations. However, it should be noted that not all ISA are easy access and some may require that you make no withdrawals. You should check the terms and conditions of the ISA account before you invest in the ISA.
It should also be noted that you can only invest so much annually. Currently, you can invest a maximum of £5,340 each year, but no more than this in an ISA saving account. As such, they are not ideally suited to larger investments as you will have to gradually expand the ISA deposit annually to invest anything greater than the above figure. However, they also have only a minimal minimum deposit requirement which is an advantage.
At the moment UK interest rates are not especially high. As such, and at the moment, most ISA saving accounts have relatively low interest rates of approximately 2–3% on average. Although a good number may also have interest rates of less than 2%. However, these interest rates can increase.
It is also worth noting that UK ISA account interest rates are usually lower than those of bond investments. Bond investments usually have the highest average interest rates which can be a few percent larger than ISA saving accounts. So overall, these are better for larger deposits.
Overall, ISA accounts are good investments compared with standard saving accounts. They are fairly flexible and secure investments which can potentially generate thousands in the longer term if you maximize your ISA accounts. Almost all of the UK banks now have ISA accounts, so you can be sure to find ISA accounts with a branch near you!