Since my post about saving money last month, I’ve been researching the heck out of good old Individual Saving Accounts (more commonly known as Isa”s) I’ve had my cash Isa since they first came about when I was the tender age of Seventeen and I didn’t have a clue what to do with it. My sister was the brains of the family and she ordered me to open one as soon as they came out but then left me to it! I’ve come along way since then and my poor old neglected Isa has come with me. I’m amazed now at how much they have grown!
Isa’s are a way of earning interest on your money without having to pay tax on the money invested or the interest earned on that money. Isa’s are commonly known as a tax wrapper as it is protected from tax. Isa’s are only available to those within the UK.
There are currently five types of Isa in the UK:
- Cash Isa
- Stocks and Shares Isa
- Innovative Finance Isa
- Help to buy Isa
- Lifetime Isa
A cash Isa is essentially a savings account that you open with any bank/building society. It tends to have a higher interest rate then a regular savings account and has the added benefit of being tax free. Your initial deposit is always returned and that is guaranteed with a bonus of any interest earned on it. The money is usually available instantly making it perfect for short term saving or even as the emergency fund account. There are still a variety of account types – Instant access, regular savings and fixed rate deals so be sure to open up the account that is right for you.
Stocks and Shares Isa
A Stocks and Shares Isa is very different from a cash Isa as your taking the leap from saving and dipping a toe into the world of investing. This can be things like Corporate Bonds (lending money to business/government), Shares (investing in individual companies) and Funds (mix of bonds and shares but with a specific theme). All these will be covered over the course of my journey. You can buy Stocks and Shares Isa’s from bank/building society and online. Its a two step process where you have to choose the provider first and then choose which types on investment you want. Its important to remember as well that if you withdraw money from your Stocks and Share’s Isa then it can not be reinvested and putting it back into the account will decrease your annual allowance so think really carefully before taking it out. Its a good idea to split your money between both Cash and Stocks and Shares if you think you may need the money but still fancy trying investing.
Innovative Finance Isa (IFISA)
A brand spanking new Isa for 2016. This Isa is Peer to Peer lending which simply, put is lending your money directly to borrowers without the bank. This way you get the interest in your pocket without banking fee’s for lending it out. Typically the interest rates around this type of Isa are double the usual rate of a Cash Isa however it is important to note that the IFISA is currently not covered by the Financial Services Compensation Scheme so its essential to check what type of protection scheme is in place before handing over your hard earned cash.
Help to Buy Isa
This Isa is designed specifically for first time home buyers and offers a nice little Government bonus as an incentive/ help you get your foot on the ladder. Simply put you put your money in this Isa and the government boost your savings by 25%, pretty sweet huh? The maximum the Government will give you though is £3k. They are available from most banks/building societies, and you can save a maximum of £200 every month. You can even fire up your saving by making your first deposit £1,200. You can only use this Isa to buy your first house though so its not suitable for anyone who already own a property.
New for 2017, this account is for First time home buyers or saving for after your 60 since if you use it for something other than these two you are hit with a whopping 25% fee on the amount you withdraw! Your only able to pay £4k from your allowance into this Isa but the Government will give you a nice little bonus of 25%/ max of £1k per year. You can only pay into this account until you either buy your first home or until you reach the age of 50. Then the account will remain open but you can not pay anything in to it. Once you hit 60 the money can be withdrawn fee free and used for whatever you want. This is best for the youngsters out there at the ripe old age of 18 or for people with extra cash that can max it each year and gain a tidy little profit at the end.
Here’s a handy little comparison chart:
So I hope you’ve gained some insight into Isa’s, I know I feel a lot more switched on to making my money work for me once I have some to save of course.
How do you use your Isa allowance?