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What is an ISA and how it is important for savings

What is an ISA and how it is important for savings

Nowadays UK citizens have at their disposal a new way to save money while investing it. Individual Savings Accounts, which can also be called ISAs, represent a whole new way to give savings the chance to grow while also enjoying numerous benefits. They are in fact some particular kind of savings account specifically designed to give people the chance to save or invest according to their needs and preferences and in a tax efficient way. This means that when you deposit money on your ISA, it will always be protected from tax. As a matter of fact, in the last few years, Individual Savings Accounts have grown in popularity among people of all ages: opening an ISA might be a good idea for people who want to start saving their money and for new investors as well. Unlike GIAs (General Investment Accounts), ISAs let the account holder the freedom to invest in a wide variety of fields without paying any tax. Nowadays, ISAs can be opened by any UK resident over the age of 16 depending on the type of account chosen. There’s even a particular kind of ISA available for underage children. Let’s have a closer look on this matter and explore the different kind of ISAs currently available in the UK.

A whole new way of managing savings

As previously mentioned, ISAs are a really popular savings account because they allow the holder to save money in a tax efficient way. Saving money is very important in modern society, as it represent the best way to enjoy and to try to ensure greater security in your everyday life. In fact, having money set aside is a good way to face emergencies and to have a plan B when something sudden and unexpected happens. However, average savings by gender and region in the UK mostly depend on the age and financial situation, so on job and income of each person. ISAs represent a really innovative way to save money while also investing it. This way, the holder will give his savings the chance to grow over time. The important thing, when you start investing through an ISA, is to always remember that every investment could lead to potential losses. Although you’re giving your savings the opportunity to grow, you might also end up getting less than what you deposited. So, even though ISAs represent a good way to save money, you should always be careful with your investments.

What is the annual ISA allowance?

The annual ISA allowance is the maximum amount that the holder can deposit on the Individual Savings Account in a tax year. Currently, this value is set at £20,000 per year for all regular ISAs and to £9,000 for Junior ISAs, which are savings account intended to save money for underage children.

Which type of ISA should I open?

Let’s have a look on the different type of Individual Savings Account available in the UK. The most common and popular kind is the Cash ISA, which is the closest to a regular savings account with the only difference that it lets the holder make tax-free contributions while complying the annual allowance. Stock and Shares ISAs, on the other hand, are accounts designed for investments: by opening this kind of account you’ll be investing your savings in stocks, shares, bonds, land, real estate and more with the goal to get a financial return. You can also open a Lifetime ISA, which is intended to help the owner with his life related purchases. Innovative Finance ISA, on the other hand, has been designed to so that the holder can invest money in peer-to-peer lending with the goal to earn interests. However, you should always keep in mind that your money will be at risk, because like every kind of investment your capital might grow as well as go down.
Lastly, another really popular kind of ISA: the Junior ISA. This last type has been specifically designed for parents or legal guardians who want to save money for their underage children.

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