ISAs: how do I love thee? Let me count the ways

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By Personal Investment Team

28 Jul 2019

ISAs have been around since 1999 and have been a big hit with investors.

ISAs have been around since 1999 and have been a big hit with investors. And it’s not hard to see why: they’re one of the most tax-efficient ways of saving for the future. In fact, over 10 million* people a year choose ISAs as part of their financial planning.

 

Here are 10 top reasons why they’re so popular:


1. There’s no tax on interest or growth and you don’t have to declare ISAs on your tax return. Whatever you’ve got, it’s all yours.

The government wants to incentivise all of us to save more so they don’t tax any gains you make on your ISA gains.


2. Because they’re so tax-efficient, the government limits how much you can save, but the annual allowance of £20,000 is more than enough for most people.

The limit of £20,000 a year equates to over £1,666 a month if you prefer to save in regular contributions.


3. You can start a new ISA each year.

ISAs run on a tax-year basis so you can start a new one every April and build your savings over time. There are four types of ISA: cash, stocks and shares, innovative finance and lifetime.

Cash ISAs pay a fixed interest rate, while Stocks and Shares ISAs invest in funds and equities. Innovative Finance ISAs let you invest in peer-to-peer lending schemes. Lifetime ISAs are designed to help first-time buyers or boost retirement savings.


4. You can often start with as little as £20 a month or a lump sum of £100.

ISAs are a flexible way to save. You can pay in monthly from your regular income or get straight in with a lump sum. You can even combine the two if you get a bonus or some other windfall. Obviously the £20,000 total limit still applies.


5. You can top up your Isa throughout the year, subject to the maximum annual allowance of £20,000.

You can increase your monthly contributions at any time or pay in additional lump sums.

 

6. There’s loads of investment funds to choose from, including green funds, ethical funds and index tracker funds.

You can choose just one fund or a mixture of two or more, subject to the limits of the particular scheme. Most providers offer a simplified choice usually based on your personal appetite for investment risk but there are hundreds of funds to choose from if you’re a more experienced or adventurous investor.


7. You can change funds at any time.

It’s important to remember that a Stocks and Shares ISA is a long-term investment, ideally five years or more. If, however, you do decide to change funds, it’s pretty easy to switch and you can usually do it online or by telephone.


8. It can all be done online.

Most providers have slick application processes and all you need is your bank account details and national insurance number. You can also check the value of your funds and make switches online.


9. You can take out a Junior ISAs to give a child or grandchild a nest egg for when they reach 18.

If you want to build a nest egg for a child or grandchild you can start a Junior ISA in their name. You can contribute up to £4,368 a year and it doesn’t affect your personal annual ISA allowance.


10. You can take your money out whenever you want.

ISAs are very flexible. You can take some or all of your money out whenever you want and there’s no tax to pay. However, depending on your ISA’s terms and conditions you may not be able to replace your money once you’ve taken it out.


So that’s it! Ten great reasons to join the millions of savers who love their ISA.

 

*HMRC Individual Savings Account (ISA) Statistics (April 2019)

 

 

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Risk warning

Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest . Tax rules for ISAs may change in the future and their tax advantages depend on your individual circumstances.

Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.