In the UK there are various savings accounts, and one of these is the Indivudal Savings Account, or ISA as they’re more commonly known.
ISAs are tax free savings accounts offered by most banks and building societies. You have a certain amount allowance each tax year that you can save into an ISA. There are quite a few options for this type of account now, so I shall quickly run through the options.
Cash ISA.
A cash ISA is there for you to save only cash into. For the tax year 2017-2018 you can save unto £20,000 tax free into a cash ISA. There are then fixed rate ISAs, instant access ISAs and a regular saving cash ISA. You do need to check the different savings rates for these, as they vary massively depending on your provider.
Stocks and shares ISA.
In a stocks and shares ISA, you are investing as opposed to stockpiling cash. You can have a mixture of cash and investments within a stocks and shares ISA. All income earned and any capital gains are protected from tax within a stocks and share ISA. My Ultimate Dream Fund is mainly housed with a stocks and shares ISA 🙂
A Help To Buy ISA.
A help to buy ISA is specifically aimed at first time buyers, to help you save for a house deposit. For each £200 you put into a help to buy ISA, the government will add £50 so you are getting free money (up to a maximum of £3,000).
A Lifetime ISA.
This is either aimed at first time buyers or for retirement, and can only be opened by someone under 40. You can either use the money towards your first home, or leave it in there until you’re 60 and put it towards your retirement. For every £4 you put in, the government will put in a £1, to the maximum amount of £4,000.
Junior Cash ISA.
This is a cash savings account for under 18s. The amount you can put in this for the 2017-2018 is £4,128. All interest in one of these is tax free too 🙂
Junior stocks and shares ISA.
The same as the junior cash ISA, this is for under 18s too. Any income on dividends, capital gains or interest is tax free. You can put in the same amount – £4,128.
I think that everyone should have an ISA of some kind. Any interest or income earned within an ISA is tax free. Which might not mean very much when your savings are low, but if you are saving or investing for the long term, then over time the tax free bit is important. You need to do some research into which type of ISA would best suit your needs; I’ve gone for a stocks and shares ISA as I want to build a dividend income stream.
Do you have an ISA? Which type did you decide on?
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So how should I combine my investment strategy across ISAs and a pension / SIPP ??
Whilst ISAs do shelter from tax on income and CGT, surely the massive uplift on pension contributions coming from gross and not net income, sheltered gains and income from tax until the pension is drawn or converted into an annuity, possibility of employer contributions etc should not be ignored ??
Or do you advocate only an ISA approach and that we should “all have an ISA” ??
As someone who doesn’t really know much about pensions, apart from having one with my employer, I suggest if you’re thinking about it, then you need to talk to an independent IFA. I don’t think pensions and employer contributions should be ignored – quite the opposite.
Where do peer to peer lending ISAs fall into all of this please?
You can get an Innovative Finance ISA which is for peer to peer lending 🙂