If you’re someone who likes to plan ahead and take advantage of some government savings initiatives while you do, you’ve probably considered opening an ISA account.
But is this unique savings opportunity right for you? And what kind of ISA should you have?
Defining an ISA
Simply put, an ISA, also known as an Individual Savings Account, is a way for you to save money for the future and get some tax-free benefits while you do so.
The range of ISAs available
There are 4 types of ISAs (generally speaking) that people tend to choose from. Understanding which one works best for you is the key to gaining the most benefit from it.
Below is a summary of each ISA and what they can offer you.
Junior ISAs
Junior ISAs are usually opened by parents or other family members who want to help save up and give a child a lump sum when they turn 18 to help with their future goals.
Benefits of a Junior ISA:
- You can put up to £9,000 into it per tax year
- The money is tax-free (if you remain within the set limit)
- Anyone is welcome to contribute to it
When the child in question turns 18, the account ceases to be a Junior ISA, and as a legal adult, the child can do whatever they please with those funds as they are now the legal owner of the account.
Cash ISAs
A Cash ISA works like a traditional savings account. However, unlike a savings account, you’ll be limited to the amount you can put into the account for each tax year.
Benefits of a Cash ISA:
- You can put up to £20,000 into it per tax year
- You’ll pay no taxes on the interest it gains
- Considered a more simple ISA
A Cash ISA is a good choice for people who are cautious about their money and investments.
Stocks and Shares ISAs
This ISA means that you’re allowing a savings provider to invest your funds into any assets they choose. This can range from stocks and bonds to property and more.
Benefits of opening a Stocks and Shares ISA:
- The potential to gain far more interest on your funds
- You can pay up to £20,000 into it (tax-free) per year
- The option to choose what you invest in yourself
With more potential to earn comes more risk of losing funds. Variables like market volatility can affect your investment.
Lifetime ISAs
A lifetime ISA is for people saving for either a deposit on a first home or retirement.
- For people aged 18-39 only
- Government adds a 25% bonus to amounts saved
- Save £4,000 annually (tax-free)
If you don’t use your money for a first home or retirement, you’ll lose the extra 25% bonus.
Working with the right company
If you’ve decided that opening an ISA is the right choice for you, take the time to research reputable companies with a strong track record of sound financial advice and guidance.
With the right people working alongside you, and the right ISA, you can have more peace of mind for the future, and begin to build an impressive nest egg.
