Why do people bother with Cash ISA's?

I am hoping for some insight into the benefits of a cash ISA compared to high interest bank accounts. 

For eg. I currently use my 20K per year allowance on my stocks & shares ISA, and use bank accounts like Wise & monzo who offer around 5% for cash (which does not get taxed at all).

If I open a cash ISA, I now have to take away from my stocks & shares ISA allowance, and then actually pay tax when I earn above £1000? 

Does anyone have a different perspective on this? It seems like there is no additional benefit to opening a cash ISA. 

Comments

  • Billxx
    Billxx Posts: 206
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    If I open a cash ISA, I now have to take away from my stocks & shares ISA allowance, and then actually pay tax when I earn above £1000? 


    You do no pay tax on interest within a cash ISA.

    Kind Regards,

    Bill
  • Albermarle
    Albermarle Posts: 21,085
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    Interest gained in a cash ISA, is completely tax free.
    Interest gained in a non ISA savings account, is potentially subject to tax if above certain levels.

    So if you have a reasonable amount of savings it can make sense to keep some in a Cash ISA.

    If you have a lower amount of savings it maybe not be necessary to use a Cash ISA, as the amount of interest you earn will not attract a tax liability.

    use bank accounts like Wise & monzo who offer around 5% for cash (which does not get taxed at all).

    The interest you earn is never taxed before you receive it. The annual interest amounts are reported to HMRC by the providers. If you earn enough interest, your tax code will get adjusted later to get back any tax owed.
  • molerat
    molerat Posts: 31,541
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    edited 25 January at 4:36PM
    and use bank accounts like Wise & monzo who offer around 5% for cash (which does not get taxed at all

    The interest from those accounts is taxable, interest from ISAs is not.  My current ISA is paying 5.2%.  ISAs went out of popularity with the low interest rates but once rates improved it became very easy to earn over £1K making them a viable option once more.


  • amanda1024
    amanda1024 Posts: 238
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    Like others have said, for taxpayers cash ISAs mean you get to keep all the interest rather than potentially paying tax on some of it, and at the moment rates are fairly similar. Another potential advantage of a cash ISA over a fixed rate savings account is that you’re apways able to take the money out the ISA when you need it (albeit potentially with an interest rate penalty), whereas with non-ISAs often there’s no way to access the money at all. As you say, there’s a trade off between cash ISAs and S&S ISAs now that the annual limit has been pooled - it’s up to individual savers’ risk appetites and when they’re likely to need the money, which of the two is the best (or a mix of both)
  • masonic
    masonic Posts: 22,845
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    Like you, I prioritise wrapping my investments over cash. Many do not hold significant S&S investments outside of their pension, so the allowance is available.
  • Thank you everyone, that is all very helpful. I did not realise that the interest was tax free, and I also had not considered that all the interest I earn in my wise account may actually be subject to tax. 

    I will consider cash ISA's after all! 
  • Archerychick
    Archerychick Posts: 186
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    Thank you everyone, that is all very helpful. I did not realise that the interest was tax free, and I also had not considered that all the interest I earn in my wise account may actually be subject to tax. 

    I will consider cash ISA's after all! 
    Just be aware that you have an annual limit of £20k currently in each tax year, so depending on how much you have to save you could put £20k in now and then another £20k in the new tax year. 

    also depending on whether you need access to the funds in the next year you may be better to fix the rate for 12 months to maximise your interest 
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