Individual Savings Accounts get the job done, but that doesn’t mean that it’s always so simple to figure out what you need to do in order to get where you need to go. Saving for the future is something that everyone talks about, but is it really something that you need to think about in order to push forward? Of course it is!
You see, you have the right to save your money, and there are many different vehicles that are in place for you to do this. It’s all about the type of risk profile that you’re building for your finances.
UK savings and finance isn’t anymore complicated than any other country’s finances, but you do need to look at your options. That’s what we’ve come here to do today.
So let’s bring the conversation back to Individual Savings accounts, shall we?
Individual Savings Accounts are just a financial product that allows you to invest money without being subject to income tax or even capital gains tax if you pull it out to use it for something else. A lot of people assume this means that the funds have to be used for retirement but this isn’t the case at all. You might be saving money for a home purchase or another major purchase where liquid savings would be a wise idea. A broad range of investments can be held within the Individual Savings Account structure, so keep this in mind.
There are two major types of ISAs: cash ISAs and stocks and shares ISAs. You might also hear about Junior ISAs as well — we will get to those in just a moment.
You see, a Cash ISA is exactly what it sounds like. You can deposit cash into the account like any other savings account. The money is tax-free at this point, which can definitely save you a lot of money.
However, there’s the stocks and shares ISA which also tends to get people a little confused. You see, the money that you invest in a stocks and ISA can be put to different investment vehicles while still letting you enjoy tax free growth. You can put money towards a future investment — which would be considered the “cash” portion of the S&S ISA, or you can go into investment trusts. There’s also OEICs, unit trusts, stock market company shares, public debt securities, Eurobonds… the list goes on and on. Suffice it to say that you will definitely have a lot of choices when it comes to how you invest in a stocks and shares ISA.
Earlier we spoke a bit on risk profiles and risk management. With so many different investments you have to realize that a stocks and shares ISA can definitely be a lot riskier. In fact, the only way a stocks and shares ISA qualifies per se is if you can lose up to five percent of the overall value. So while there is reward, there is also risk as well.
So, what about those Junior ISAs? Well, as you can tell by the name, they are going to be the ISAs that are available to those under 18. The child in question must be born on or after 3 Jan 2011 and be a resident of the UK.
There are some limits to an ISA that you need to know about before you get too excited about them. For example, you need to keep in mind that you cannot put in more than the annual limit into ISAs.
The overall limit is 10,680 GBP. The cash limit is going to be 5,340, so keep that in mind when you’re trying to invest money into an ISA — the remainder can go into a stocks and shares ISA. You should also be aware that there can only be one of each — if you try to take out too many accounts, you will lose the benefits and be subject to penalties.
Now is the perfect time to start thinking about ISAs — why not get started today?