How much can I invest in an ISA?

There are limits – called allowances – to how much you can save into an ISA. The Government decides these every year.  For 2016/17, the tax man has decided every adult can save up to £15,240 tax free in an ISA. There are some occasions where there are additional allowances available.

You can always check the current allowance on the HMRC website.

Investing in an ISA 

ISAs (Individual Savings Accounts) are simply tax-efficient ways to save. They can help your savings grow, because you don’t pay tax on any growth on your investment. So you get to keep more of your cash, rather than handing some back to the tax man.

How does an ISA work?

There are two kinds of ISA - a cash ISA and a stocks and shares ISA. Currently, you can save up to £15,240 each tax year into either one, or split your allowance between them both, but you can only pay into one stocks and shares and one cash ISA in a tax year.

A large stack of coins

From 6 April 2016 new rules mean that some ISA providers will let you take money out, then put it back in again without it using up any of your annual ISA allowance.  These will be known as Flexible ISAs.

How does an ISA work? 

A Cash ISA works in pretty much the same way as any other savings account – the big difference is, you don’t pay tax on the interest you earn.

This ISA takes your cash and invests it in stocks and shares and other investment types. This means, compared to a cash ISA, your money has a greater opportunity to grow, especially if you’re investing for the longer term

 

As well as the two main types of ISAs for adults, there’s a third option which is just for children. Junior ISAs are a great way to save for your child’s future, whether that’s university fees, a first car or getting onto the property ladder. You can start saving into a junior ISA as soon as a child is born and they can’t get hold of the money until they’re 18. It’s a great way to build a nest egg for the future.

Junior ISAs have their own allowance – for 2016/17 it’s £4,080.

Setting up an ISA 

Aegon offer a S&S ISA which you can set up if you want to do it yourself, or talk to an Independent Financial Advisor. Alternatively contact Aegon Assist for guidance on setting up an ISA.

ISA top tips 

  • Your ISA allowance only lasts for a year. That means you can’t invest, say, £10,000 this year and then roll over the spare £5,240 to add to your tax-free allowance next year. Basically, it’s use it or lose it.
  • 6 April is the beginning of the tax year. It’s a good idea to open your ISA as close to that date as possible because your savings will have longer to earn tax-free interest.
  • As well as the junior allowance, savers aged 16 and 17 are also allowed to save up to £15,240 in an adult Cash ISA. So if they have any spare money floating around from birthdays or Christmas, tucking it away in an ISA could be a great option.