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How to open an ISA

Whether you want to open a fixed term ISA or an instant access ISA, the process of opening both is the same. The first port of call when you open an ISA is to find a platform and provider that suits your requirements and budget.

You will need to go through the account opening process and use your credit card or an alternative method to make a minimum deposit which can be anything from £1 up to £20,000 – which is the current ISA allowance for 2021/22.

What do I need to open an ISA?

Much like all internet banking, what you need to open an ISA account will depend on whether you are opening a cash ISA or a stocks & shares ISA, as well as the individual requirements of the platform you decide on. Generally speaking, you will need your name, address, National Insurance Number and deposit method such as a debit card.

The process for opening the account is very simple and most providers allow the process to be done in-branch if the provider you choose has real-world locations, over the phone or even online.

Overall, the whole process works very much the same way as internet banking and most onboarding processes are quick and easy to complete. You must be a resident in the UK, over 16 and within your yearly total ISA allowance for that tax year.

You won’t have to go through a credit check or any sort of process that involves your credit, as cash ISAs aren’t a credit-related product. There’s no overdraft involved and you can’t borrow money against it – meaning your credit score isn’t involved at all.

Aside from this, you’ll need a few personal details to open up your account – such as your National Insurance number, your address and also your occupation. You’ll also need to provide some forms of ID to help combat money laundering.

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Is my money safe in an ISA?

Any ISA you put your money into is covered by the FSCS (Financial Services Compensation Scheme) which is backed by the UK government. This Financial Services Compensation Scheme safely covers your money up to £85,000. This protects you in case the providers of your ISA goes bust.

If you have more than £85,000 to invest, to get the best cover from the FSCS it is probably best to spread this money across different assets or ISAs from different providers and financial institutions. Keep in mind that you can only open one ISA account per tax year!

With your standard cash ISA, any money you invest into it should be safe and secure whilst earning you interest. With other types of ISA such as the stocks and shares kind, there is a certain level of risk and so they act more in line with other investment types.

You should also make sure your provider is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Conduct Authority is a financial regulatory service that ensures certain ethical standards in order to protect consumers. Most online platforms will also employ stringent data protection protocols in order to protect your personal information.

ISA Allowances

For the 2021/22 tax year, the allowance for paying into one cash ISA is £20,000. This one cash ISA allowance applies for a cash ISA, stocks & shares ISAs, a Lifetime ISA (This Lifetime ISA has a lower limit of just £4,000) or an innovative finance ISA. This allowance can also consist of a combination of the four different types as long as the total is within this annual ISA allowance.

After you reach your ISA allowance, you won’t be able to put any more money into any kind of ISA during the same tax year, and you must pay any money in before the 6th April 2022 to be within this allowance.

Personal Savings Allowance

The Personal savings allowance or the PSA was introduced in 2016 and allows any basic rate paying taxpayer to earn up to £1,000 of savings free from income tax (This rate is £500 for people on the higher tax rate). For most people, making full use of an ISA allowance makes perfect sense: any tax benefits you get from your ISA allowance allows you to keep your tax free benefits year on year.

Another thing to take note of when it comes to savings accounts and the personal savings allowance is the fact that whilst this allowance may be good for avoiding paying tax without an ISA account, if the savings rates rise, then tax may become an issue.

If the government were to make any major reviews to the way that savings are taxed at any point in the future, the PSA may be vulnerable to a change. ISAs are well established, and a big change in the tax-free allowance of these accounts would be extremely hard to justify in comparison to scrapping or lowering the Personal Savings Allowance.

Is it worth having an ISA?

Thanks to the introduction of the Personal Saving Allowance, the question has now arisen as to whether it is actually worth having an ISA. The Personal Savings Allowance means basic rate taxpayers will not have to pay tax on any interest earned up to the sum of £1,000 for basic-rate taxpayers. This means that if you fall under this amount, the only reason for you to choose an ISA over savings accounts is if the rates were better, and sadly this is rarely the case.

However, it is not as cut and dry as this, as if you start to earn interest above the Personal Savings Allowance in the future, your interest that had been earned would already be protected from tax should these funds already be safely tucked away in an ISA. It is also worth having an ISA if you were thinking of taking advantage of an investment ISA and would like to protect your investment income from any tax bill.

Always bear in mind that with a a more risky type of ISA – such as a stocks and shares ISA or innovative finance ISAS- your capital is always at risk as with any investment and you could get back less than your original investment.

Transferring ISAs

You can transfer any ISA savings you have from one cash ISA provider to another at any point you like and as many times as you like. Make sure you read the terms of your current ISA and complete an ISA transfer form. You can also switch between types of ISA (such as an easy access cash ISAs to fixed rate cash ISAs or vice versa). This is great as it allows you to compare ISA accounts and ensure you always have the best cash ISA rates or even swap the type of account if your circumstances change.

What are alternatives to ISAs?

If you want tax free interest on your savings account but don’t like the sound of an ISA, there are other options you can go for, including:

Stocks and Share ISA

This type of ISA allows you to invest in shares whilst protecting your profit from income tax and capital gains tax. Since the ISA is based around the stock market, your money is at risk and if things go south you can even end up losing money! These types of ISAS are seen more as long term investments and if you opt for this type of ISA, you should prepare to invest for at least five years.

Savings accounts

Savings accounts don’t usually offer an interest rate as high as a cash ISA but you can access your money much easier, being able to move it around freely.

Premium bonds

Premium bonds are a monthly investment scheme and act almost as a raffle. Each £1 you invest gives you an entry with monthly prizes ranging from £1 all the way up to £1 million. You have to invest at least £25 to enter for 25 entries. You don’t earn any interest on these bonds – any money you get from the investment is purely by luck

How to Open an ISA FAQs

Are ISAs safe?

Yes,ISAs are safe as long as they are provided by a UK regulated bank or building society. With an ISA from one of these, the first £85,000 of money is protected by the Financial services compensation scheme.

What is the total annual allowance for ISAs?

The total annual allowance for ISAs in the 2022/23 tax year is £20,000. This figure is not due to change in the 2023/24 tax year.
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