What is an ISA?
ISAs are Individual Savings Accounts. They’re there simply to give you another tax-efficient way to save. They work because, unlike an ordinary savings account, you don’t pay tax on any growth in your investment. So you get to keep more of your money. Brilliant.
What is an ISA for?
In a word, saving. You can use an ISA to save up for anything you want – whether it’s a new car, a big holiday, or simply to save for a rainy day. Many people also use ISAs as a way of saving for retirement.
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 usually only pay into one stocks and shares and one cash ISA in any tax year.
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 some of your annual ISA allowance. These will be known as Flexible ISAs.
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. Different ISA products have different rules. For example, some give you instant access to your cash, while others expect you to keep your money in the account for a fixed time.
Stocks and shares ISA
This type of ISA invests your cash 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.
What’s the best ISA for me?
There are a few different things to think about.
- Cash ISAs are generally thought to be low risk, because your cash is tucked up in the bank rather than being invested in the stock market. So if you’re looking for a low-risk option that’s a positive. On the negative side, your money may not grow as much as it would with a stocks and shares ISA, especially if interest rates stay low.
- Stocks and shares ISAs invest your savings in stocks and share and other investment types, so there’s a greater chance your money will grow. But there’s also the risk that your investment could perform badly. That means you could get back less than you invested in the first place.
Read more about the pros and cons of different ISA products.
As well as the two main types of ISAs for adults, there’s a third kind of ISA 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 little nest egg for the future.
ISAs are ‘tax-efficient’: That means you get to keep hold of more of your cash, rather than handing some back to the tax man. But remember there are limits to how much you can save into an ISA. For 2015/16, the government made this allowance £15,240. That means you’re free to invest up to this amount in a Cash ISA, a Stocks and shares ISA or a combination of both. There are some occasions where there are additional allowances available.
The allowance for children is lower – for a junior ISA you can save up to £4,080 a year.
Anything else I need to know?
Setting up an ISA is simple. You can arrange your own, or you can ask an Independent Financial Advisor for some ISA advice. Alternatively contact Aegon Assist for guidance on setting up your ISA. You can usually invest a lump sum, make regular payments, or do both.
Saving for retirement
Most of us don’t want to work forever, so it’s important to plan and save for your retirement. ISAs are a great way to do this, but they’re not the only way. You could also invest in a personal pension, or have a combination of both – whatever works for you.