The pros and cons of cash ISAs

The cash ISA has long been seen as a dependable and robust way to both save money and to grow money. But things have changed a little bit, and this particular area of the financial market is not as straightforward as it used to be.

In this article we will look at the pros and cons of this particular type of financial instrument, as well as many variations. The aim is to give you an idea of the advantages and disadvantages of opening up a cash ISA.

The fixed rate cash ISA is an excellent instrument if you are in a position where you can tie money up for as long as 5 years. If you’re able to do this, then you can look forward to a higher rate of interest than with other similar financial opportunities. So that is a clear advantage of using a fixed rate ISA.

The disadvantage of such an ISA is that if you wish to take your money out sooner, then you will face a penalty. This can be quite a large amount of interest that you could lose on your savings, so it is well worth understanding the penalty rates for this particular type of financial instrument.

An instant cash access ISA is simply what it says it is. You can usually get hold of your money instantly, but the downside of this is that there is hardly any advantage to the interest rate itself. With interest being little more than 1%, and the average maximum amount you can save in these being £6000, it is not the worlds biggest savings instrument.

The biggest advantage here is the instant access element, and the biggest disadvantage is the fact that it has incredibly low rates of interest that don’t do much better than the usual bank rate of interest for savings.

A notice cash ISA provides slightly better interest rates than instant cash ISAs, but significantly less interest then the fixed-rate instrument. So you are getting an advantage here in the amount of interest that you get compared to the instant model.

This is one clear reason why this particular type of ISA has grown in popularity in recent years. However, a clear disadvantage of this particular type of savings instrument is the fact that the notice period can be as long as 90 days with some accounts. This is an incredibly long amount of time as a payoff for better interest.

These three types of cash ISA are the most common versions available to the British public. There are other versions, including a junior one. Bear in mind that ISAs are individual instruments, and that terms and conditions can change with little notice.

It is worth shopping around for a good deal on one of these, and then weighing up the interest rates as against the notice period for access to your money. They are excellent for saving money, as long as you pick the right particular account.

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