Individual Savings Accounts – An Insights

Individual Savings Accounts

Are you a UK taxpayer relying on a traditional savings account? Are you in between the basic rate and higher rate taxpayer? If yes, you should switch to an Individual Savings Account. Started on 6 April 1999 by the UK Government, this one aims to encourage people to save more money. Unlike traditional savings accounts where you have to pay tax on the interest earned, ISAs are completely tax-free. Let’s dive deep into this so that you can maximize your savings.

Types of ISA

There are various types of ISAs. Let’s have a look.

•Cash ISA
•Stocks and Shares ISA
•Innovative Finance ISA
•Lifetime ISA
•Junior ISA

However, the twist is that you can save only up to £20,000 in one account in a tax year. You can also choose to spread it across ISAs.

Cash ISA

While this includes savings in your bank accounts or building society accounts, it can also include national savings and some investment products. This is the most common type of ISA which is apt for you if you have a low-risk taking capacity and you don’t want to get bothered by any tax implications. Remember, you must be above 16 years old to open a cash individual savings account.
Stocks and Shares ISA

If you have a risk-taking appetite and want to grow your savings quickly, go for the Stocks and Shares ISA. It facilitates you to invest in the following investments:

•Company shares
•Government bonds
•Corporate bonds
•Unit trusts and investment funds

The best thing is that any returns on any of these are entirely tax-free.

Innovative Finance ISA

This ISA lets you invest in peer-to-peer lending platforms, crowdfunding debt securities, and other innovative finance products. Moreover, as expected, here any interest earned from these investments is not subjected to any tax. If you are open to investing in non-traditional investment avenues while completely understanding the risks, this one is for you!

Lifetime ISA

This ISA enables you to invest in both cash and stocks and shares to save for retirement or your first home. However, you must be more than 18 years old, but less than 40 years to open this individual savings account. Here, you will also get a Government bonus, typically 25% of your savings. Remember, this is a long-term investment that allows you to withdraw your money only under any of these three conditions:

•You are purchasing your first home
•You are aged 60 or more
•You are suffering from a terminally ill and had less than 12 months to live

Junior ISA

If you are a parent or guardian willing to invest for a long term for your child’s future, this one is for you. However, you can only save up to an amount of £9,000 in a Junior Individual Savings Account. To open this account, you must have a child whose age is less than 18 years and he must reside in the United Kingdom. As the money belongs only to the child, the control of Junior ISA can be handed over to the child when the child turns sixteen.

Lastly, it is important to assess your financial goals. You should also evaluate your risk tolerance capacity to understand which type of ISA will prove best for you. Don’t forget to compare multiple providers. Check their varied interest rates and investment options to make an informed decision. If you want any kind of assistance in opening an individual savings account or to maximize your overall savings, seek professional help from experts. In the UK, there are plenty of tax consultants that can help you invaluably in this regard.