By opening an ISA (an Individual Savings Account), you can save money for the future while enjoying some wonderful tax-free benefits at the same time. But with several different ISAs to choose from, which is best for your specific needs and goals?
Because companies like Wealthify believe that everyone should have the right information to make their savings as simple and stress-free as possible, here’s a guide to the various types of ISAs you can open.
Junior ISAs are aimed at parents and well-wishers who want to save for the future of a child. You can put up to £9,000 per tax year into a Junior ISA , completely tax-free, and absolutely anyone is welcome to contribute to it (just be sure not to exceed the cash limit previously mentioned).
While these are very popular ISAs, it’s important to be aware of the fact that when the child in question turns 18, it will cease to be a Junior ISA, and the child will now be legally an adult and free to spend the money within that ISA as they please.
Stocks and Shares ISAs
Stocks and Shares ISAs are riskier than standard ISAs. But with that extra risk comes the potential to gain far more interest in your money. This ISA works by having an account provider invest your funds into assets that they believe are profitable. This can be anything from the property market to shares and bonds.
You have a choice to also choose where this money is invested yourself. However, most people prefer to let this side of their ISA be managed for them instead. Like a Cash ISA, you’ll be limited to £20,000 per tax year, and there will be a fixed term you’ll have to agree to as well.
If you’re just after a simple but effective investment opportunity without the added confusion, then a Cash ISA may be perfect for you. Cash ISAs work like any standard savings account would, except that you’re limited by the amount of money you’re permitted to put into it each tax year.
But Cash ISAs certainly have their benefits, as you’ll be able to save up to £20,000 in this ISA without paying any taxes on the interest that you’ve gained from it.
IFISAs (Also known as Innovative Finance ISAs)
Much like a Stocks and Shares ISA, there’s a little more risk and less guarantee of making money with an Innovative Finance ISA (or IFISA). However, it does allow you to pay up to £20,000 per tax year into the ISA, and lets you also invest in any peer-to-peer lending initiatives that you might be interested in.
Lifetime ISAs are only for people aged 18-39, although you can continue to add to the savings within the account until you reach the age of 50 (you’ll need to be all cashed out by the time you turn 60). A lifetime ISA is predominantly used by people to help raise funds for payment on a first home or prepare for retirement. This ISA allows you to save £4,000 annually, and the government even adds a 25% bonus on any amount saved within this time. If you use your money for anything other than purchasing a first home or retirement, then you’ll understandably lose that extra 25%.