A cash ISA can be very handy for unexpected expenses - Money - The Independent

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A cash ISA can be very handy for unexpected expenses

 

Having money in a cash ISA can really help when big, unexpected expenses crop up, such as your boiler packing up in the cold winter weather. Or emergency renovations to your home. Life’s full of unexpected surprises. So having a little bit of money put by can help to give you real peace of mind.

An ISA is an Individual Savings Account. And every tax year you get a tax-free cash ISA limit - which is currently £5,640 for the tax year 2012/13. You can pay in up to the maximum, but no more during each tax year. Tax treatment depends on your individual circumstances and may change.

With variable cash ISAs, you can pay in by standing order, lump sum or as and when you like - so it gives you greater flexibility for deposits but the interest rate you earn will also be variable. You can also normally withdraw as and when you like too. But if you take money out, you won’t be able to simply put it back in if you've already reached your limit of £5,640 for this tax year 2012/13. So if you've already paid £5,640 into your cash ISA for this tax year - and you take out £1,000 - you won't be able to put the money back in until the new tax year. So always think twice before you take your money out.

Here are a few things that may come along where you might need to dip into your savings:

Car replacement and repairs

Cars are expensive - and fixing them can over time sometimes cost nearly as much as the car itself. From replacing head gaskets to covering the cost of accident repairs, you could spend hundreds, and possibly thousands, of pounds on putting things right.

House renovation

Keeping your home in tip-top condition can be pricey. Especially if you have an old house, as the years can be unkind to its structure. Unexpected repairs and maintenance, like fixing the roof, can really put a strain on your finances.

Replacing home items

Fridges, freezers, cookers, boilers. There are plenty of things in most people's homes that are worth hundreds of pounds. And if you don’t have adequate insurance in place to replace them if they break, you could be saddled with a whopping bill.

Unforeseen tax bills

Although it's always good to plan ahead for tax bills, sometimes self-employed people can be caught out if they don't put enough money aside. And depending on what you earned that year, your bill could be hundreds or thousands of pounds.

There are so many expenses that might crop up without any notice at all. So look at different ISA rates when you're shopping around to find the right variable rate cash ISA for you. And once you've built up a nice little pot of money, you can stop worrying about what life might throw your way.

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