1. What Is A Cash ISA?

A Cash ISA (Individual Savings Account) is a tax-free savings account available to UK residents. It allows you to save money without paying tax on the interest earned, making it an efficient way to grow your savings.

2. How Does The Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Total amount after compounding
• \( P \) — Principal investment amount
• \( R \) — Annual interest rate (%)
• \( n \) — Compounding frequency per year
• \( T \) — Time in years

Explanation: This formula calculates how your savings grow with compound interest, where interest is earned on both the principal and accumulated interest.

3. Importance Of Compound Interest

Details: Compound interest is a powerful wealth-building tool that allows your savings to grow exponentially over time. The more frequently interest is compounded, the faster your money grows.

4. Using The Calculator

Tips: Enter your initial deposit, annual interest rate, select how often interest is compounded, and the time period. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the current ISA allowance?
A: The annual ISA allowance for the 2023/24 tax year is £20,000. This may change in future tax years.

Q2: Are Cash ISAs tax-free?
A: Yes, interest earned in a Cash ISA is completely tax-free, which means you don't pay income tax on the interest.

Q3: Can I withdraw money from my Cash ISA?
A: Most Cash ISAs allow withdrawals, but terms vary by provider. Some may have notice periods or withdrawal restrictions.

Q4: What's the difference between annual and monthly compounding?
A: Monthly compounding calculates and adds interest each month, resulting in slightly higher returns than annual compounding at the same rate.

Q5: Are there any risks with Cash ISAs?
A: Cash ISAs are generally low-risk as they're savings accounts, but returns may not keep pace with inflation, and your capital isn't protected against provider failure beyond FSCS limits.