Is a Regular Saver ISA the Best Type of Savings Account for You?
A regular saver ISA lets you put away money each month, up to a limit, and earn tax-free interest on the cash.
There are usually limits on the amount of money you can save and, to earn interest on the account, you’ll usually need to make a set number of deposits every year. However, in return for these restrictions, you should get a higher rate of interest on a regular saver ISA.
Here we answer all your questions on regular saver ISAs.
How does a regular saver ISA work?
Regular saver cash ISAs allow you to put away a regular amount each month which is handy if you don’t have a lump sum of cash. They often pay a higher rate of interest than easy access accounts, but in return you will need to commit to paying in regularly – skip a month or two and you may lose interest.
Withdrawals may also be limited. Usually, you’re only allowed to take money out of an account one or two times before facing a penalty of loss of interest.
These restrictions mean that regular savings ISAs are best for savers that want to build their savings discipline and do not need instant access to their money.
Although you can invest a maximum of £20,000 into a cash ISA each tax year, regular saver ISAs will usually cap the amount of money you can pay in each month and this may be around the £500 mark.
How to choose a regular saver ISA
Exact terms on minimum and maximum contributions, as well as the withdrawals that are permitted and the impact of missing months, will vary between providers so it’s important to check these details before you open an account.
For example, if you want to be able to access your money at any point, an account that only allows two withdrawals a year may not work for you.
Similarly, if you only have £50 to put away each month a regular saver ISA that only allows deposits of more than £100 won’t be an option.
Here are some of the main pros and cons of picking a regular saver ISA:
The pros of a regular saver ISA
- The interest rate is likely to be higher than with an easy access ISA.
- You can put small regular amounts away.
- You may be able to make a few penalty-free withdrawals each year.
The cons of a regular saver ISA
- There are limits on the amount of money you can deposit – this is likely to be below the full ISA allowance.
- Some accounts offered by smaller building societies are only available in their local area.
- You could be penalised for making multiple withdrawals.
How to open a regular saver ISA
How you open a regular saver ISA will depend on the provider, but you can usually choose from online, phone, post, or in a bank or building society branch. When you open the account you’ll need to make an initial deposit, and the amount of this will depend upon the provider.
There are currently very few regular saver ISAs available and they are often from smaller building societies who may not offer their products nationwide. A quick search on a financial comparison site will highlight which products are available.
What’s the difference between a regular saver ISA and a regular savings account?
The main difference between a regular saver ISA and a regular savings account is the fact that an ISA is a tax-free savings account, with an annual limit of £20,000 for the current tax year.
However, all adults in the UK aged 16 and over also have a personal savings allowance (PSA) that lets basic rate taxpayers earn £1,000 in interest and higher rate taxpayers earn £500 in interest before they pay any tax.
This means there is less difference between ISA and non-ISA accounts than there was before the PSA was introduced in 2016. Therefore, the main benefits of taking out an ISA, whichever type you choose, will be if the interest rate is higher, or if you have already reached your PSA limit.
» MORE: ISA or Savings Account
Is my money protected?
Up to £85,000 of your money will be protected under the Financial Services Compensation Scheme (FSCS). This cover is per person, per banking group and includes all UK banks, building societies, and credit unions but if you’re not sure if a provider is included you can check the FSCS register.
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Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent. Read more