What is an ISA and how it works?
In recent years UK citizens have new ways to put aside savings or invest them. The most popular is currently the ISA, a particular kind of account specifically designed to help people save or start a new investment path. This is neither a regular savings account nor an investment account. What makes ISAs so popular among people of all ages is the ability to save or invest in a tax efficient way.
This means you can put aside your savings or embark on a new financial path and your money will be protected from UK taxes. It is a special kind of account also suited for first-time investors, who will have a wide choice regarding the many fields of investment available. ISAs can be opened by any UK resident over 16 and there’s even a special kind designed for parents or legal guardian to put money aside for their children, which will gain access to their money as soon as they turn 18.
However, even though investing with an ISA can be really convenient, you should always keep in mind that every investment is very risky. As a matter of fact, even though they represent a really good and fast way to generate an economic growth, you could always end up getting less than expected. This is due to the constant market’s fluctuation, which make investments unpredictable and risky. In any case, if you have enough money aside and want to start a new investment path, you will have many choices at your disposal.
If you’re planning to open a new individual Savings Account keep reading: we’ll show you the types of ISAs currently available in the UK to help you figure out which one is the best suited for you. You can also check this Moneyfarm’s article to understand how many ISAs you can open at the same time.
Annual allowance
Like mentioned above, ISAs come in many different types. Whichever account you’ll decide to open, your savings will always be tax protected. They also come with a restriction of the amount of funds you can deposit in a year. This value is called Annual ISA Allowance and it refers to the maximum amount that you can deposit you your account in one tax year, which is currently set at £20,000. On the other hand, if you’re planning to open an account for your underage children, the Annual Allowance for the Junior ISA amounts to £9,000 per year.
ISAs come in many types
Nowadays, UK residents have a wide choice regarding the many types of savings and investment accounts available.
The most popular Individual Savings Account is currently the Cash ISA, which is the most similar to a regular savings account except for the fact that the money you put in it will be protected from tax. Stocks and Shares ISAs are really popular as well: they represent the closest choice to a regular investments account because they allow the holder to invest in a great diversity of areas such as bonds, shares, real estate and so on. Lifetime ISAs have been designed to help you put money aside for life related purchases, such as a new house or for retirement.
On the contrary, Innovative Finance ISAs have been designed to allow the holder to invest in a peer-to-peer lending with the goal to gain interest. Lastly there’s the Junior ISA, the account intended to help parents save money for their underage children. Other family members and friends can also contribute to the fund by monthly depositing a minimum amount. However, your children will be able to access their money as soon as they turn 18 years old.