What are the Benefits of an Investment ISA?
If you're a first time investor thinking about opening an investment ISA, you're rightly going to want to weigh up your options. So what are the key benefits to putting your money in an Investment ISA?
What exactly is an Investment ISA?
An Investment ISA - also known as a Stocks and Shares ISA - is a tax-free wrapper for your savings which enable you to earn returns on your investments which are safe from the tax man.
The tax allowance for the tax year 2020/2021 is £20,000 – and it’s never too early to be squirrelling your money away to maximise your tax-free returns.
In order to open an Investment ISA, you must be:
- 18 or over
- a citizen of the UK
What are the Benefits of an Investment ISA?
An Investment ISA can serve many purposes and help different investors in different ways depending on their individual needs and profile. A few of the benefits you can expect to gain from an Investment ISA are as follows:
Variety
An "Investment ISA" is an umbrella term; there are lots of different kinds of investment ISAs. You can open one per year and you can hold as many as you would like. Examples of types of Investment ISAs include:
Tax Free
An ISA is protected from tax - this is based in Government legislation. An Investment ISA is no different, as within an ISA (as compared to another form investment) there is:
- No capital gains tax on profits which result from an increase in share prices.
- No tax on bond interest.
- No tax on dividends.
Flexibility
Lots of platforms will have flexible options regarding the management of your Investment ISA. You can either take a DIY approach and manage your investments and funds yourself, or you can pay for a fund manager to use their expertise to manage your investments for you. Depending on your experience and preference, you can choose the management style that suits you best.
Returns
Typically, the returns you can make from a Cash ISA account have been very poor in recent years - even more so following the historic lowering of the Bank of England's base rate in March of 2020.
However, the interest rate of Investment ISAs are typically higher - meaning that you can expect to see a higher rate of return for your money. There are trade offs (Cash ISAs can offer instant access to your cash, whereas this is less common with Investment ISAs).