In modern times a lot of people decides to save their money while giving it the chance to grow.
This is possible thanks to some new types of savings account specifically designed to give people the opportunity to save in a tax efficient way. It is the case of ISAs, which are Individual Savings Accounts that represent a whole new way to save or invest capital. ISAs are currently the most favored kind of savings account available in the UK, because it allows the account holder to put money aside or to invest it in bonds, shares, stocks and so much more without ever paying any tax on it. ISAs are available for all UK residents over the age of 16 and they come in many different types: new investors, or people that want to start saving their money, can choose the best kind of account according on their financial and life situation. Nowadays you can even open and Individual Savings Account for your underage children, to secure a more stable economic future for them. If you want to start investing or saving your money and you think an ISA might be the right choice for you, keep reading. You can also check this stocks and shares ISA guide for a deeper comprehension of the matter.
How does an ISA work?
Whichever type of account you’ll decide to choose, there are some rules that all types of ISAs have in common. For instance, there’s a value called “annual ISA allowance” which indicates the maximum amount that can be deposited by the holder in a year. This amount is currently up to £20,000 per year for all adult ISAs, and to £9,000 per year for Junior ISAs. All Individual Savings Account currently available in the United Kingdom are also designed to be tax-free.
What type of ISA should I open?
After explaining what an ISA is and what its main characteristics are, let’s see what types of accounts are available in the UK. The first one, which is also the most common, is the Cash ISA. This kind of account is the closest to a regular savings account, except that it allows the holder to make tax-free contributions. Also, he will be compelled to comply with the annual ISA allowance. On the contrary, Stock and Shares ISAs are designed for investments. When opening a Stock and Shares ISA you won’t be just saving money, but you’ll be investing it and giving it the chance to generate an economic return. However, you should always keep in mind that all investments come with a risk, and you might also end up getting less than what you deposited. This kind of account gives you the chance to invest money in stock, shares, bonds, estate and so much more. The third kind of ISA, which is also very popular, is Lifetime ISA (also called LISA), which have been designed to help people saving money for their future. This option is available for all UK residents between 18 and 40.
Innovative Finance ISA is another kind of Individual Savings account that allows the holder to invest capital in peer to peer lending with the goal to get it back with interests. As previously mentioned, there’s also a type of Individual Savings Account which has been designed for underage people. As a matter of fact, Junior ISAs can be opened by a parent or by a legal guardian to save money for their children without paying any tax on it.