The Cash Individual Savings Account (ISA) or cash savings ISA is part of a scheme introduced by the UK government in 1999 to help people save for their future. This new scheme replaces the existing PEP (Personal Equity Plan) and TESSA (Tax Exempt Special Savings Account) schemes.
Unlike a regular savings account at a bank or building society, the cash ISA is a tax-free savings scheme. This means that all the interest you earn on your cash ISA account is tax-free and your money can keep growing in a tax-free manner.
The ISA scheme was introduced in 1999 and is expected to run for at least 10 years. Initially, you can save up to £7,000 a year until 2005/2006 and then £5,000 a year for 2006/2007. Your account manager will tell you if any changes to the contribution limits are announced.
The best part about the cash ISA is that it is totally flexible. You can invest how much you like, how frequently you like – a little monthly or in a lump sum once a year. Of course up to the pre-determined limits. Your investment can be as short- or long-term as you. The cash ISA is totally flexible, allowing you to withdraw the money whenever you need it. This feature makes this account a good investment option for short-term savings.
In an effort to make the ISAs popular, the government has instituted CAT standards for all ISAs. CAT stands for Costs, Access and Terms and means that ISA managers have to comply with certain standards of service. For all ISAs, there are no one-off charges and managers have to use plain English to explain all features of the ISAs.
Specifically related cash ISAs, managers cannot levy any charges on you, except in cases, for example, when you request a duplicate statement or replacement for a lost card. The minimum transaction size is £10 and withdrawals can be made within seven working days or less. And interest rates on the cash ISAs cannot fall below the base rate minus 2% and upward moves in interest rates must be reflected in the account within one month.