ISAs – Individual Savings Accounts – are brilliant tax-efficient ways of saving and investing.
Once you have started using ISAs, you will never look back. If you are putting money away for something specific or just for the future, an ISA should always be your first port of call.
Once you know where you can save money and how you can do it, the next step is to ensure your savings are working for you.
If you are using a really good savings account, you can basically sit back and let the interest earn money for you.
So what is so special about ISAs? ISAs offer you something different; you won’t pay any tax on the interest you earn.
In the UK, one of the best savings accounts is the ISA. With ISAs, all the interest you earn is tax-free, and your capital is totally safe. With a cash ISA account you can save up to £5,100 per tax year.
Top 7 Reasons Why You Would Be Mad Not To Have An ISA
1). ISAs are tax-efficient
With an ISA, you are sure of the fact that there is no income tax to pay on the interest you earn on a cash ISA. Basic rate taxpayers get a fifth more in interest each year than from the same account outside a tax-efficient ISA. And if you put your money into stocks and shares, there is no extra tax to pay on dividends from equities or on payments from bonds. And when you finally decide to sell your shares, there is no capital gains tax bill either, no matter how much you have made.
2). ISAs limits are rising
There used to be a limit to how much money you can put in an ISA every tax year, but the good news is that these limits are in the process of going up. In the past, you can only invest a total of £7,200, but the limit was raised to £10,200 in April, 2010. Since 2010, annual ISA allowance has gone up to £11,520 in the 2013/14 tax year. This means that you can invest a further £5,760 in an investment ISA which is also known as stocks and shares ISA.
3). ISAs give you choice
Another great benefit of ISAs is that they give you choice on what to do with your money. You can put up to half your annual ISA allowance into a cash ISA (a safe savings account). But you can invest the other half – or even the whole lot if you wish – into stocks and shares (unit and investment trusts as well as individual equities and bonds). You can also choose between putting in a lump sum or investing smaller amounts.
4). ISAs is a use it or lose it tax deal
Once you have got your money wrapped up in an ISA, it will always qualify for tax benefits, year after tax year so the tax savings will mount up. Remember you can’t carry over your annual allowance past the end of the tax year in April, so it is important to act now.
5). ISAs make sense
It makes more sense to have an ISA since it’s available for every UK resident over the age of 18 – (cash ISAs are also available for 16 years old as well as 17 years old in as much as the account is in their name). So if you are able to put money aside, what is the point of paying tax on savings and investments if you don’t have to?
6). ISAs can be as secure as you like
Once you have decided how to split up your annual allowance, there is a vast selection of both cash and stocks and shares to suit all tastes from savers who want total safety, to investors who are prepared to take risks. And – apart from a few long term investments that lock you in for a fixed time – if you change your mind or see something you like more elsewhere, you can transfer you ISA to another provider.
7). Banks can talk you through ISAs
Not many people understand the benefits of ISAs, and this is where your bank can help so that you will be able to understand what you are getting into. Book an appointment with the local branch of your bank and get them to talk you through the range of ISAs available on offer.
