Making money from a mini cash ISA

A Mini Cash ISA is essentially just a savings account that the tax man can’t tax you on. If you are already saving money in a regular savings account and don’t have an ISA then you are throwing money away as you are paying tax on the interest when you don’t need to.

In the UK you can put a maximum of £7000 per financial year (6th of April to the 5th of April the following year) into an ISA, of that £7000 you can put a maximum of £3000 into a cash ISA the rest can go into a stocks and shares ISA.

Mini cash ISA’s work exactly like a normal savings account, except that if you withdraw money from it you can’t put it back in. For Example - If you deposited £2500 in your ISA you would still have £500 of you allowance left. If you then withdrawed £1000 you would still only have £500 left in your tax free allowance. Your allowance can only be used once.

Each tax year you are given a fresh £3000 allowance, that means you need to open a new ISA account which can be with any ISA providor. You still keep your other ISA’s open from previous years but you can add any more money to them.

Example - If you leave £3000 in a regular savings account paying 5% AER over 3 years you will make £553 in interest, if you are a lower rate tax payer (22%) you will pay - £121.66 of it in tax, a higher rate tax payer (40%) will pay £221.20 from the interest in tax. If you leave this in an ISA you will not be paying any interest, so you will keep the full £553.

A few examples of current ISA’s on the market

National Savings and Investements ISA 4.85%

Abbey National Super ISA 8% AER

Remember that most ISA’s work on a variable rate, so it may not always pay the same rate, they can either move up or down as the Bank of England base rate changes, so when you do take out an ISA it is a good idea to check the rate every so often to make sure it is still competitive.