The basics of Nisas (which have replaced Isas) — what they are, how they work, and how you can save without paying tax on the interest you make.

Compare Nisa accounts [1]

Key points

• Nisas replaced Isas on 1 July, 2014
• Save without paying tax on interest
• Annual allowance limits apply — in 2014-15 it’s £15,000, in 2015-16 it will be £15,240
• Tax year is 6 April to 5 April

In simple terms, a Nisa (New Individual Savings Account) allows you to save money without paying tax on the interest you receive. There are two types:

• Cash Nisa. Acts as a savings account into which you deposit cash
• Stocks and shares Nisa. Acts as a tax-free wrapper for your investments

Cash Nisas may be suitable for short-term savings, so that you can get at your money easily, while stocks and shares Nisas may be appropriate if you can afford to leave your money untouched for longer periods. However, your investment may go down in value as well as up and there are no guarantees that you’ll make a profit.

You can pay into one account of each type during the tax year, which runs from 6 April to 5 April the following year.

• Appendix 1: Cash Nisas v Stocks and shares Nisas (table)

Nisa qualification

Different Nisas have varying degrees of qualification. You must be:

• Aged 16 or over to open a cash Nisa
• Aged 18 or over to open a stocks and shares Nisa
• There are separate Nisas for children under the age of 16 — these are called junior Nisas

Nisa allowance

The allowance is the amount the government permits you to invest in your Nisa accounts during each tax year.

At the start of each new tax year (6 April) you’ll receive a new allowance. If you don’t use it, you lose it — the allowance can’t be rolled over to the next tax year.

By using your Nisa allowance each year it’s possible to accumulate a significant amount of tax-efficient savings.

Key points

• You can open one cash and one stocks and shares Nisa each tax year
• You can withdraw money as with any other saving account
• If switching providers transfer funds, don’t withdraw them

While you should consider interest rates on other non-Nisa savings and current account products, remember that the longer you have your money in a Nisa, the longer it will benefit from the tax-free rules.

In the 2014-15 tax year, individuals can invest up to £15,000 a year in cash Nisa accounts, stocks and shares Nisas, or any mixture of the two — you can save the entire £15,000 in cash if you so wish. In the 2015-16 tax year this limit will increase to £15,240.

Remember that you’re only able to open a maximum of one cash Nisa and one stocks and shares Nisa each year. Once open you can transfer money between these different types of Nisas freely, subject to your provider’s terms.

This differs to the old Individual Savings Account (Isa) rule where you could transfer money from cash Isas to stocks and shares Isas, but not vice versa. For more information, see the fact sheet on the government’s website. †

• Appendix 2: Summary of historic Isa/Nisa rule changes

Withdrawing money from Nisas

In this regard, Nisas work like any other savings account — you can take money out at any time.

However, just like regular savings products some Nisas may run for a fixed period or require notice of withdrawal — you may lose some interest or bonus if you withdraw early.

Did you know.

• While there are limits on the number of Nisa accounts you can subscribe to each tax year (one cash Nisa and one stocks and shares Nisa) there are no limits on the number of Nisas you can hold over time — you could open 10 Nisas over 10 years

While withdrawing money won’t cost you the tax-free interest you’ve already accumulated, you will lose that element of your lifetime tax-free entitlement.

If you put money back in it’ll count against your annual Nisa subscription limit in the year that you re-invest your money.

Transferring Nisas

You can easily switch your Nisa provider without losing your tax-free allowance, but it’s vital that you transfer the Nisa rather than withdrawing the money to open a new account.

Under the old Isa rules, cash Isas could be transferred into stocks and shares Isas, but not vice versa. Nisas allow transfers either way — from stocks and shares to cash and vice versa.

As with Isas, it is also still possible to transfer each type of Nisa to another product of the same type. You can, for example, transfer one cash Nisa to another, something you may want to consider to obtain a better interest rate.

Within a tax year you’re only able to transfer the whole of your annual Nisa to a new provider. Amounts from previous years may be transferred as a whole or in parts as you wish, but you should be aware that not all Nisa providers will allow part transfers.