Individual Savings Accounts: everything you need to know

If you are looking for a way to save and invest money at the same time, you should know that the British Government has created some savings accounts specifically designed for this purpose. As a matter of fact, Individual Savings Accounts – also known as ISAs – are tax wrappers meant to give the holder the chance to save or invest money without Income Tax nor Capital Gains Tax.

Depending on the type of ISA you choose, you will have the chance to save money just like you could do with a regular savings account or to invest in a wide diversity of investment fields. However, when starting to invest, you should never forget about the danger that comes with this kind of operation. Any kind of investment puts money at risk, for it is subject to volatility and constant fluctuations. That’s why you should always take into account the chance to end up with less than expected. Regardless of the type of ISA you decide to open, you should also remember that all ISAs come with a limit on the funds you can deposit in a year. This sum is called Annual ISA Allowance and it is set at £20,000 per year. If you want to find out more on how to make the most out of your allowance and how ISAs, work keep reading.

All the ISAs presented to UK residents

Today, ISAs are available in many different types, in order to meet the needs of as many people as possible. Here are the accounts available for British citizens.

The Stocks and Shares ISA a tax-efficient investment account. As mentioned above, this means you don’t have to pay income tax or capital gains tax on money you earn from your investments made through the ISA, up to a certain limit. You can invest in stocks, bonds, funds, etc.

Cash ISAs, on the other hand, work similarly to a regular savings account. Once again, the only difference stands in the chance to save your money in a tax-efficient way, which is not possible with a regular savings account. Moreover, there are two types of Cash ISAs, namely instant access and fixed rate, which have different policies in terms of withdrawal.

Lifetime ISAs are also very popular. They are some particular ISAs intended to help you save money for your own future. By opening one you’ll be able to put money aside for life related purchases, such as the first house or for retirement. In order to be eligible to open this account, you should be aged 18-40.

Innovative Finance ISA is also designed for investments. In fact, by opening one you’ll be able to lend money to companies with the goal to gain interest payments. However, you should always be aware to the risk involved in these kinds of operations, since you have no guarantee if the borrower defaults.

Junior ISAs work in a completely different way. In fact, you as a parent or legal guardian can open one to put savings aside for your underage children, who will be able to access it as soon as they come of age. The annual allowance for a JISA has been set at £9,000 per year.

What is a flexible ISA?

Flexible ISAs have been introduced for the first time in April 2016. This was surely a very well-received announcement, for it completely changed the way you can manage your savings and investments. But what is really a flexible ISA? It is indeed a special kind of ISA that lets you withdraw from your account and still be able to use that specific part of your allowance in the same tax year. Before April 2016 things worked differently: in fact, if you used all your allowance but needed money for an emergency, you weren’t allowed to withdraw. Today, you can, and you can also put that exact sum back into your account without affecting the allowance in that tax year. This way, you will also be able to enjoy all the tax-free benefits that come with your ISA.