‘Individual Savings Account’, or ISA, is a term that applies to a range of tax-free accounts designed to shelter your savings and investments.
They are available from a range of different providers, including high street banks and building societies. The type of ISA that’s best for you depends on your age, eligibility and objectives.
You can have more than one ISA, but you can only have one of each type. There is also an overall limit to how much you can save in ISAs in any given tax year. In 2017-2018, the ISA limit is £20,000.
This is the most straightforward kind of ISA. They tend to give you a better rate of interest than a regular savings account. As with all savings accounts, Cash ISA interest rates have been cut by most providers in recent times. Nevertheless, this remains a good option if you want to save money while also having instant access to it if needed.
This is a type of Cash ISA designed to help first-time homebuyers raise a deposit. You cannot have both a Cash ISA and a Help-to-Buy ISA at the same time unless your provider allows you to split your account. You can put in up to £1,200 in the first month and up to £200/month thereafter.
You can put in up to £1,200 in the first month and up to £200/month thereafter
When the money is withdrawn to buy a home, the government will add 25% of the total invested, up to a maximum of £3,000. To get this much, you would need to save the full amount each month for four-and-a-half years. The money can be used to buy a property up to the value of £250,000 (or £450,000 in London).
Stocks and Shares ISA
This is a way of investing in assets such as shares or bonds, but because this is done within an ISA, the money will benefit from tax advantages that are not available if you invest directly.These are usually managed by a fund manager, who charges a fee. Over the longer term, there is the potential for a greater return than if the money was in cash savings accounts, but this is not guaranteed and there also is the risk the value can fall. They should, therefore, be viewed as a longer term investment.
The new kid on the block, the Lifetime ISA (LISA) was launched this month and is aimed at under-40s to help them save for retirement or buy their first home. You can save up to £4,000/year, and the government will add 25% each year until you reach the age of 50.
You can save up to £4,000/year, and the government will add 25% each year
However, unless you use the money to buy your first home, you can’t access it until you’re 60 without paying a 25% penalty. This means that you may lose more than just the bonus.
Junior ISAs are available for children under the age of 18 and they work in the same way as ordinary ISAs. The money can be held in Cash, Stocks & Shares or a mixture of the two, but the maximum contribution is £4,128 in 2017-2018. The child will not have access to the money until they become 18.
If you’re considering starting an ISA or investment, our team of advisers can help. They will get to know you and your aims – as well as your attitude towards risk – before advising on the type that is best for you. Get in touch to find out more.
Please note, the value of an investment and any income from it can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future.
The value of tax benefits depends on your individual circumstances and the laws concerning these can change.