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Comprehensive Guide to ISAs

Encouraging UK taxpayers to save

Comprehensive Guide to ISAs

There are two types of ISA. Cash ISAs allow you to save without the interest being subject to tax. The second type of ISA is a stocks and shares ISA, also known as an investment ISA.

How much can I put into an ISA?

From 6th April each year, every eligible person gets an ISA allowance.

You can only have one ISA in each financial year, so research your options carefully. Whether you choose a cash or investment ISA, give some thought to your savings goals beforehand to determine what the right ISA is for you.

You can't carry your tax-free allowance over from one financial year to the next so, if you've got enough cash to hit your limit, think about maximising your ISA allowance. The cash ISA allowance for the financial year 2018/19 is £20,000.

An ISA is a great way to save for a specific event like a deposit for buying a home, a wedding, holiday, or starting a family

What can an ISA do for you?

An ISA can help you to build up an emergency fund - the money in a cash ISA can be withdrawn at any time, provided that the ISA manager you choose offers these terms. This lets you stash money away for a rainy day without paying tax on any interest you earn.

Stocks and shares ISAs are an easy way to invest in the stock market without having to pay capital gains tax on your earnings.

An ISA can help you save for the cost of higher education for yourself or your children - you can put money away to help your children with university expenses, which are increasing year on year and look set to continue in this vein. Or perhaps you're looking to go back into education yourself? 

While it usually makes financial sense to take advantage of a student loan rather than paying tuition fees upfront, it's very useful to have some money saved up for non-tuition expenses such as textbooks, rent and food. In addition to the peace of mind that comes with having funds to help with education, you can also enjoy the tax benefits that come with saving money in an ISA.

An ISA can be a good way to build up a nest egg for retirement - many investors are moving away from traditional pensions and investing more money in ISAs. But why? Firstly, ISAs offer more flexibility than pensions, allowing you to customise your savings to your specific needs. Secondly, the money in an ISA can be withdrawn prior to retirement age, without penalty, if it becomes necessary.

What Cash ISA Should I Choose?

Choosing between a fixed rate ISA and an Instant Access ISA can be tough.

An instant access cash ISA might be the right choice for you if:
  • You would like a good rate of interest, plus the ability to get hold of your money quickly if necessary
  • You need to take advantage of your annual tax-free savings allowance but only have a small amount to deposit - instant access ISAs can usually be opened from as little as £1
  • You want to be paid regular interest as instant access ISAs usually offer monthly or quarterly interest
A fixed-rate cash ISA might be right for you if:
  • You are happy to put your money aside for a set period of time - this usually allows you to accrue a higher rate of interest than you might get with an instant access cash ISA
  • You want to take advantage of your tax-free savings allowance and have a lump sum to deposit - many fixed-rate cash ISAs require an initial deposit of around £1000
  • You can use our services and tables to help you choose the right option for you

What Stocks and Shares ISA should I Choose?

Picking the best Stocks and Shares ISA can be daunting, there are plenty to choose from so it can be a little daunting. Particularly for people who are new to investing.

Providers are constantly making it easier for people new to investing or people who are too busy to manage their funds.

A Stocks and Shares ISA is a tax-efficient way to invest. Despite the name, you can invest in many things besides Stocks and Shares, all with varying levels of risk.

As well as shares you can also invest in:

  • Investment trusts
  • Open Ended Investment Companies (OEICs)
  • Unit trusts
  • Government bonds (Gilts)
  • Corporate bonds
  • Some providers have a large portfolio of funds to choose from whereas others have a more streamlined approach to make it easier to manage.

    Check for account management fees and transactions charges.

    What is a Junior Cash ISA?

    Junior Cash ISAs offer each eligible child a tax-free savings account. They are a way for parents, family or friends can contribute funds to help save for the child's future. Junior ISAs first become available in November 2011 to replace the now-defunct Child Trust Fund

    There are several advantages to choosing a Junior Cash ISA for your child. We’ve listed some below:
    • It's an easy and convenient way to save tax-free for your child's future - Unlike many savings accounts, the money saved in a junior cash ISA stays tax-free once the child reaches adulthood. If the child decides to keep the cash in the account once they reach 18, it will automatically be converted to a regular ISA.
    • Any adult can pay money into the account - family friends, grandparents, godparents, aunts and uncles can all contribute - making a junior cash ISA an ideal way to save up money given on birthdays and other special occasions without the child being tempted to spend it.
    • The money is locked away until the child turns 18 and cannot be released by either parents or children until this point - a bit like a pension fund. This can be advantageous as it means the child can't blow all their savings on clothes or holidays once they hit the teenage years - and parents won't be tempted to dip in either.

    Conclusion

    Learning about ISAs before you open your first account will not only ensure that you're complying with all tax regulations, it will also enable you to reap the maximum benefit from your ISA savings or investments.

    There are many ways to use your ISA allowance, whether you invest for the short term or over the long term. With so many options for your money, it's no wonder this savings vehicle is so widely recommended by financial experts today. As always, it's best to seek independent financial advice before taking out any savings or investment product.

    Important Risk Information:

    This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.

    Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

    High Income ISAs

    High income ISA ideas:

    ISAs Products

    Cash ISAs

    Fixed Rate & Instant Access ISAs:

    Cash ISAs: 

    Stocks & Shares ISAs

    Types of Stocks and Shares ISA include: 

    Stocks and Shares ISAs

    Latest News

    How much can I pay into an ISA?

    21st March 2019

    Each tax year, there's a limit set by the government to the amount you can save and invest in ISAs: your “annual ISA allowance”. The allowances are intended to reward savers and encourage us to invest more to support our future retirements, without creating a tax haven that can be taken advantage of by very wealthy individuals who just want to avoid paying tax.

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