A cash ISA (Individual Savings Account) is a financial product which enables any citizen of the United Kingdom to save a limited amount of capital each tax year (which runs from April 6th or the nearest business day thereafter) without incurring any capital gains or income tax on the interest achieved. Investment in a cash ISA is subject to maximum limits determined by the UK government.
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For the 2010 tax year, the maximum allowance each individual can invest in a cash ISA is 5,100 GBP. This is a substantial rise from the previous limit which was set at 3,600 GBP. Savers 50 years of age and over were able to take advantage of the new limit from October 2009, before it became available to all on April 6, 2010. From 2011, the allowance for a cash ISA will rise in line with inflation of the UK economy.
You can deposit the maximum cash allowance into your ISA in as many increments as you wish during a single tax year. If you have the available funds, it is most beneficial to invest the maximum amount at the start of the tax year as this will earn you the most interest over the following 12 months, providing you do not withdraw any capital from the ISA.
You can withdraw any or all of your investment at any time. If, however, you make a withdrawal within any given tax year, the amount you extract is still considered part of your cash ISA allowance. So, if you have invested the maximum allowance and subsequently make a withdrawal, you cannot make any more deposits.
You are only allowed to invest in one cash ISA per tax year. If you do not use the maximum allowance within that ISA, you cannot invest the difference in an alternative. It is, therefore, beneficial to research the interest rates different financial institutions are offering on their cash ISA products before committing your capital to one. Financial institutions are permitted to set their own interest rates for their cash ISAs; they do not have to follow the Bank of England base rate.
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