Are you looking for a great way to save your money without having to pay excessive charges or give your hard-earned cash to the tax man? Then an ISA might just be for you. Right now, there are different types of ISA, the most well known being the cash ISA.
Essentially, these are savings accounts on which no tax is payable on the interest you earn. However, another way to achieve tax-free returns is a stocks and shares ISA.
What are the differences between the two ISAs?
Stocks and shares ISAs are slightly different because instead of just putting your money into an account, you invest it into a range of shares or investment bonds and then group those investments into your ISA. Your money can be put into unit trusts, investment trusts and government or corporate bonds, to name but a few. You can even buy individual shares and put them into your ISA separately, which is known as self-select stocks and shares ISA.
The benefits of choosing stocks and shares ISAs
These kinds of ISAs offer a number of advantages for savers who want to see their money grow. If you choose to invest in stocks and shares ISAs, you can put in up to £10,680 each tax year and couples can combine their investments, meaning they can opt to save around £21,000 a year together. ISAs offer a simple method tax-free saving which means that all your savings and any interest you gain will be completely protected from the tax man.
Because these accounts are tax free, you don’t need to declare them on your tax return. They are also reasonably flexible, so if you want to make changes or transfer your cash ISA into stocks and shares it is a fairly straightforward procedure. You are generally able to access your money whenever you need it and you won’t be penalised for making a withdrawal, although you do lose the tax-free status for any money that you take out. Of course, the biggest draw to choosing stocks and shares ISAs is that you can make higher returns on your money when your chosen stocks perform well.
The disadvantage of choosing stocks and shares ISAs is the element of risk that you might face. Remember that these types of investments can go down as well as up, so you could find that your stocks haven’t performed as well as expected. If this happens, you might come out with less money than you put in, something that will never happen with a cash ISA.
As with any financial product, investing in ISAs can be confusing. If you think one might be of interest to you, it may help to get some independent advice or do some research before you take the plunge.