In the current financial climate, it really does pay to look after your money and one of the ways you can make the most of your savings is to open an ISA savings account. While there are still some who shy away from ISAs, believing them to be a complicated way to invest money, most people have come to realise that the current ISA allowance means money can be made from investing their savings into an ISA each year.
Why Choose an ISA?
Basically ISAs are a type of savings account. However, these particular savings accounts can’t be touched by the tax man. You invest your money into the savings account as normal and any returns you make are completely tax free.
There are two kinds of ISA – a cash ISA and a stocks and shares ISA – but essentially they both work in the same way. A cash ISA can be built up with money each year and any returns are tax free. Similarly, a stocks and shares ISA can be used to buy shares and other investments and any profits or returns you receive are free from taxation.
How Much Can I Save?
There are certain limits to how much you are allowed to save each year. You can obviously spread your investment by making monthly payments or you can put in one single annual amount if you prefer. However, you can’t invest more than the allowance which is set each year.
For cash ISAs the annual allowance is £5,340 and for stocks and shares ISAs you can invest a £10,680 each year. If you are wary of risking £10,680 on stocks alone, you are able to split the allowance in half, putting in half the current ISA allowance in cash and half in shares.
Can I Get to my Cash?
The great thing about an ISA is that your savings still remain fully accessible. You can take your money out instantly if and when you need it. However, this won’t mean you have extra allowance for the year. Once you remove your money, you can’t put it back in if you have already reached your annual allowance.
Are There any Downsides?
Though it easy to access your cash, obviously you will get a better return if you don’t remove your money and let your tax-free savings build up. Also, you need to make sure you use your year’s allocation during the 12 months, otherwise you will lose it.
ISAs can offer an excellent way to start saving without losing any money to the tax man, while still letting you have access to your money when you need it. However, there are many different providers in this market, so make sure you do some research to find the right ISA for you.