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ISAs explained

Learn how an ISA can help you make the most of your savings. From understanding what an ISA is to the different types available and some useful Q&As, we’ve got it covered.

What is an ISA?

  • An ISA (individual savings account) allows you to save completely tax free, so any interest made is all yours
  • There is currently an annual deposit limit of £20,000 which can be split between cash and stocks and shares ISAs
  • There are many different types of ISAs available for difference circumstances. We offer cash ISAs only
  • You can transfer your ISA allowance between different accounts to get the best rate on the market dependent on product terms and conditions, but if you withdraw the money from an ISA you will lose the tax-free status of those funds
  • To open an ISA, you must be a UK resident aged 16 or over. Additionally, you cannot open an ISA account on behalf of someone else

There are many different types of ISAs, but we keep it simple by offering a range of straightforward cash ISAs, those which have been around the longest and are the most often used. The different types of ISAs are listed below:

Type of ISA Age requirements Other requirements Date introduced Limit Annual/Total Offered by Paragon
Cash ISAs
Easy access Over 16 No 6 April 1999 £20,000 annually
Fixed rate Over 16 No 6 April 1999 £20,000 annually
Lifetime* 18 - 40 No 6 April 2017 £4,000 annually
Help to buy Over 16 First time buyer buying a
house under £250,000 (£450,000 in London)
1 December 2015 £12,000 total
Flexible Over 16 No 6 April 1999 £20,000 annually
Stocks and Shares ISAs
Stocks and Shares Over 18 No 6 April 1999 £20,000 annually
Junior ISAs
Cash Under 18 No 1 November 2011 £4,128 annually
Stocks and Shares Under 18 No 1 November 2011 £4,128 annually

*The lifetime ISA is also available as a stocks and shares ISA

Choosing an ISA

There’s a wide range of ISA options to choose from and we’ve considered a range of different scenarios to highlight some of the features that might appeal to different customers.

However, everyone’s individual circumstances are different and, at the end of the day, only you can choose the ISA that’s right for you.

I’m 21 and have just graduated from University. I am not looking to buy a house in the foreseeable future, but hope to eventually be on the property ladder. Which ISAs offer extra support for aspiring home owners?

If you’re looking to buy your first home, The help to buy ISA or the lifetime ISA might be worth a look. For example, if you’re between 18 and 40, you could deposit up to £4,000 annually in a lifetime ISA and, provided you meet all the conditions, you will be eligible to receive a bonus from the government. If you don’t buy a house, you can withdraw your savings and use them for your retirement once you reach 60. If you don’t meet the criteria for either a help to buy or lifetime ISA, a standard cash ISA can also allow you to save for a house, whilst also having flexibility.

I’m 36 and would like to put some money into savings. I am conscious about locking too much money away in case I need it for a rainy day.

If you would like to have access to your money, then an easy access ISA should give you flexibility. The great thing about our ISAs is that you can split the money between different types of account as long as you don’t exceed your current year ISA subscription so you could have some money in an easy access ISA account and the rest in a longer term fixed rate at a higher rate.

My daughter is 12 and I would like to put some money away to save for her future, possibly for a house deposit or wedding.

If you have no urgent need for the money, and won’t need access to it for a while, you can generally get better rates by locking it away in a longer-term fixed rate savings account. Paragon offers a variety of longer term fixes with consistently competitive rates. It’s important to know that when you give the money to your daughter you’ll not be able to replace those deposits within a fixed rate cash ISA – but in this case, you’d be spending the money anyway.

Alternatively, you could consider a stocks and shares ISA, which generally require a longer-term commitment too - although we can’t help you with those.

I’m 54 and have just inherited a significant amount of money. I have nothing to spend the money on but rates at the moment are not high enough to lock my money away.

If you have some money to put away but aren’t tempted by cash savings rates, then you might want to consider a stocks and shares ISA? We don’t offer stocks and shares ISAs and they do come with risks to your capital so you need to do your research and make sure you’re comfortable with the risks before you take the plunge.

I’m 49 and would like to invest in an ISA but I am worried I might need access to the money and will then lose some of my allowance.

Under these circumstances, a flexible ISA might work well. A flexible ISA allows you to withdraw money and reinvest it without losing your ISA allowance. We don’t offer a flexible ISA feature yet, so you’ll need to do some research to find a suitable provider.

FAQs

We’ve answered some of the most common questions we get asked both specific to our accounts and the general ISA market.

Can I split my money between a fixed rate and easy access account with you?

Yes, as long as you don’t exceed the ISA limit, you can have a percentage of your allowance in a longer-term fixed rate and keep the remainder in an easy access account. This will mean you can maximise your income by having a longer-term account with a higher rate whilst also ensuring some of your money is accessible for a rainy day.

Can I split my ISA between banks?

You can split ISAs from previous years’ subscriptions yes. However, you need to keep your current year’s allowance with the same provider. This will also be subject to individual banks terms and conditions.

What is the process of transferring an ISA and how easy is it?

If you’re new to Paragon, you can transfer your existing ISA online when you are applying for a new ISA with us (as long as your current ISA provider allows electronic transfers). If you’re provider does not allow this, you will receive a print ready ISA transfer form at the end of your application, which you will need to send to our freepost address. Once we receive your completed form, we’ll write to your existing provider to request your money. Your ISA will then be transferred to us.

 

If you already have an ISA with us, simply log in and click on “transfer your ISA to Paragon”. Alternatively you can download a cash ISA transfer form or stocks and shares ISA transfer form, complete the transfer form and send to our freepost address.

We will process this for you and confirm when it has been completed.

With the interest rates on savings accounts continuously changing across the market, what are the advantages of an ISA?

Quite simply, all of the interest that you earn on a cash ISA is tax-free. So, as your savings start to build up and as and when interest rates start rising, you won’t have to worry about hitting a limit on how much tax-free interest you can earn. All your cash ISA interest will be tax-free.

In addition, there are different types of ISA which might provide other advantages. For example, if you decide to choose a help to buy ISA or a lifetime ISA, you may be eligible for a government bonus on top of your interest.

I’ve built up a lot of savings in cash ISAs. What can I do to make sure I’m making the most of them?

If you’ve already built up a big pot of savings in a cash ISA, check regularly to make sure that your savings are earning a competitive interest rate. If not, consider transferring your money to an alternative provider.

If you’ve got an easy access account, then you should be able to move your money quickly. For Fixed Rate accounts, make sure you’re aware of any restrictions before starting the process. Whatever type of account you’ve got, remember to follow the ISA transfer process to protect the tax-free status of your savings.

When will I need a stocks and shares transfer form? And when will I need a cash ISA transfer form?

This depends whether you are moving money from a stocks and shares ISA with another provider into a Paragon cash ISA or not. At present, there is no electronic form to transfer your stocks and shares ISA, so you will need to apply for an account and print out the transfer form. As you go through the application the steps to take are sign-posted. However, please remember, do not withdraw from your ISA account yourself, because your money will lose its tax-free status.

Can I pass an ISA on, tax free?

Yes, as of April 2015, you can inherit funds from an ISA, and they will then retain their tax-free status. In addition, your inherited ISA funds won’t impact your ISA allowance. However only certain providers will accept inherited ISAs - we don’t currently.

How do I know when a transfer is electronic and when a paper form is required?

This will be shown on the “Thank you” page after an application is made. You will either be told to print off and fill in a paper application or just confirm the details that you have entered electronically.

Does the Paragon rate guarantee still apply when funding by transfer only?

Yes, the rate guarantee still applies when funding from a transfer only. If your transfer doesn’t complete in time – which can sometimes happen – and your money takes longer to reach us, we’ll pay the rate advertised on our website on the day we receive your funds.

Do Paragon accept ISA transfers from other providers?

Yes, we accept ISA transfers from any UK bank. UK banks are constantly improving the ISA transfer process, and on average, throughout the whole of the UK banking industry, 85% of transfers are being completed in seven days.

What is the difference between my Personal Savings Allowance and my ISA allowance?

The personal savings allowance means that, if you are a basic rate tax payer, you will be able to earn up to £1,000 of interest tax free on your savings each year. This drops to £500 for higher rate tax payers and additional rate tax payers have no Personal Savings Allowance.

The ISA allowance is the amount of money that you can add to your ISA savings each year. Once your savings are in an ISA, all the interest that you earn each year is tax free.

It’s also important to remember that your Personal Savings Allowance and your ISA allowance are completely separate and therefore you can benefit from both.

Will there be a penalty if I withdraw money from a fixed rate cash ISA early?

On a fixed rate cash ISA, early withdrawals can be made subject to an interest penalty. For Paragon, this depends on the term of the product, as shown on your product specific terms and conditions. If your account has been open for a shorter period than the penalty days relating to your product, then the difference will be deducted from your capital.

Closure of your account, transferring to another account with Paragon, or another provider, are classed as withdrawals.

If you have an easy access cash ISA, you can withdraw at any time, penalty free.

You can withdraw from a notice account cash ISA without penalty as long as you give the required notice period. If you want to access your money immediately you will incur a penalty charge equal to the notice period.

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551