Reasons You Should Still Open An ISA
The Bank of England interest rate has been below 1% for 12 years. If you’re a saver, you may think there’s little point in shopping around for the best deal or opening an ISA. But there are still valid reasons for making the most of your ISA allowance.
Each tax year, you can deposit up to £20,000 into an ISA. If you don’t use this allowance during the tax year, you lose it. In the past, ISAs offered an effective way to save with interest rates that helped your money grow. However, the low-interest rate environment means that savings have been earning little for more than a decade. But that doesn’t mean you should discount your ISA just yet, here are five reasons to use your allowance.
What Types Of Isas Are There?
The different types of individual savings account available include the cash ISA, stocks and shares ISA, Lifetime ISA, and Innovative Finance ISA. Each ISA account plays its part in reliable financial planning.
Cash ISAs are tax-free savings accounts, and they are an attractive choice for savers looking to save for short term needs and emergencies. It’s also great if you’re looking to build a nest egg for retirement. You can withdraw money early and replace funds from some cash ISAs such as flexible cash ISA without affecting your annual ISA allowance limit.
Stocks And shares ISA
Stocks and shares ISAs are tax-efficient accounts that act as wrappers for your investments. You can invest in companies directly or through managed funds. Managed funds are pooled arrangements run by professionals who manage money for other people. This investment ISA puts your money in stocks, bonds, funds, and other assets. As a result, it is among the best ISAs used to diversify investments.
Stocks and shares ISAs are riskier than cash ISAs, and they offer higher returns. You can only open one account per tax year, but you can own several simultaneously. Also, you won’t be able to contribute to more than one stocks and shares ISA account at a time per year. Stocks and shares ISA come with tax benefits. Income tax does not apply to the interest earned on bonds and other investment products held inside an ISA. If you keep your investment in stocks and shares ISAS, there’s no need to pay tax on any dividends.