ISA stands for Individual Savings Account. It’s an account that people can deposit money into where the interest earned is tax-free. An easy way to remember it is “I Save Again”. You can withdraw your savings at any time without penalty, but if you choose to leave your money in the account, you’ll continue earning interest on it. The interest earned through ISA accounts isn’t taxed by the government of England either, which makes them even better than traditional savings accounts.
Here are three different types of ISA accounts that you might want to consider.
Cash ISAs
An easy way of saving money without worrying about the interest rate that will apply is by opening up a cash ISA. The downside to this account is that it does not pay out very high-interest rates, but it is still a great way to save money without worrying about the state of the markets.
Stocks and shares ISAs
If you have some extra money you are willing to invest, think about stocks and shares ISA. This account can be opened up with your bank or building society, where they will help you decide whether you want to use an online broker or one of their advisers. These are often more flexible strategies for investing money because the value of the investments is only known at certain times during the day.
Innovative finance ISAs
An innovative finance ISA may seem like a strange idea at first, but it has become popular in recent years. These accounts allow those who might not afford the minimum investment amounts usually required to put their money into smaller companies and start-ups.
Self-select stocks & shares ISAs
A self-select stocks & shares ISA where account holders choose what they invest in themselves rather than having investment managers do it for them. With this version of the ISA, people can invest as much as they like without any annual or lifetime limits.
Junior ISAs
A Junior ISA (for those under 18) has tax benefits and no restrictions. This version of the ISA allows parents to transfer money into their children’s names to use within specific set guidelines. The parent appoints an adult custodian, but the child chooses to invest the funds.
Main benefits of ISAs
The main benefits of ISAs include:
Cash benefits
Save without paying tax on interest earned on money held in your account, including initial capital and additions.
Full access
You can withdraw funds from an ISA at any point without it affecting the tax status of your account.
Easy access
Funds Are Freely Available: Clear rules are in place for withdrawing money, so you know exactly how much you can take out each year without breaching the conditions or incurring charges.
Life changes
If you switch jobs, inherit cash or split with a partner, that won’t affect your ISA allowance; leave it where it is until you’re ready to roll it over into another product.
Lifetime limit
Save as much as possible. An ISA has a lifetime limit of £15k, which cannot be added once set up. This allows people to save as much as possible for their first house, car or other purchase.
Summary
The types of ISA accounts that exist in England vary widely; whether you want a fundamental way of saving some money or prefer to take on more risk with the potential return being greater, there is no doubt that investing in an ISA can be very rewarding. All it takes is to make up your mind about whether you would like to use cash, stocks and shares, or innovative finance. If you need any help deciding which one might be right for you, contact a reputable online broker from Saxo Bank and trade on a demo account before investing real money.
