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Types of Individual Savings Accounts (ISAs)

Posted by : Premraj | Posted on : Thursday, June 18, 2015

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Whether your financial goals include a luxurious trip abroad or starting your own business, you need to start saving now. Your money will not accrue any interest by sitting in a jar on your desk, so to save wisely, you should choose from the different types of Individual Savings Accounts (ISAs) available. The maximum annual contribution for 2015/16 you can make to your ISAs is £15,240, and that investment and interest remains tax-free until you withdraw the money, giving you plenty of opportunity to save for the future.

Cash ISAs for the Conservative Investor

Basic cash ISAs give a good interest rate for the time your money is safely tucked away in the account. Look for an interest rate that beats the rate of inflation, otherwise your money will not be worth as much when you decide to withdraw it. Many lenders attempt to draw you in with an interest rate that is only applicable for a short time, and then decreases after the term is up, typically after one year. Comparing available cash ISAs will give you the best interest rate, so do not jump on the first offer you encounter.

Fixed-Rate Cash ISAs for Long-Term Savings

If you plan on depositing your money and not withdrawing it for many years, a fixed-rate cash ISA will provide a better interest rate. This is ideal for those who are already living comfortably and do not anticipate any emergency requiring them to withdraw their savings. If you commit to a fixed-rate cash ISA, be prepared for a withdrawal penalty fee if you pull your money out before the end of the agreed upon term.

Instant-Access Cash ISAs for Flexible Savings

Some people desire the opportunity to use their savings as an extension of their wallets, by putting a little money in, and taking a little money out at will. To obtain that privilege with an instant-access cash ISA, you will have to accept a lower interest rate. Those with variable incomes, such as the self-employed, will appreciate the chance to save money without the time commitment.

Junior ISAs for Young Investors

Set up a junior ISA for your children, and watch your investment grow throughout your child’s lifetime. The money invested in a junior ISA cannot be withdrawn until age 18, so your child will have a sizable sum when they go off to university or get a flat of their own. Also at age 18, the junior ISA becomes a normal ISA, so the savings can continue if your child does not want to withdraw the money immediately. You can only get a junior ISA if your child does not already have a Child Trust Fund. The maximum annual contribution for a junior ISA during the 2015/16 tax season is £4,080, so now is the best time to start saving for your child’s future plans.

Help to Buy ISAs for Future Homeowners

A newer type of ISA, the help to buy ISA allows you to save up for your first home, with the government’s help. They will only be available as an ISA option for four years, starting in the fall of 2015. With an initial deposit of £1,000, you can make monthly contributions of up to £200. When you use this money to purchase your home, the government will give you a 25% bonus, up to £3,000. If you are considering opening an ISA for home ownership, consider waiting until these become available, as you can only open one type of ISA each tax year.

Stocks and Shares ISAs for the Serious Investor

Those who take great risks have the potential to earn great returns with a stocks and shares ISA. These are proper investments, and are not insured by the government, so there is a possibility you will lose some of your initial investment if the market drops. However, the typical market rates are well above the interest rates you will earn in a cash ISA, so you can earn considerably more on your investment. Direct S&S ISAs are managed investments, so you do not need an in-depth knowledge of the market to use these, while self-managed ISAs are for those who love the hands-on approach of tinkering with their investments. There is talk of peer to peer lending ISAs becoming a reality in the future, but for now, these sorts of individual investments are not included.

With all of the ISA options available to you, there is no reason why you cannot start saving for your long term goals. Consult with your banker to find out what rates your bank offers, and shop around to find out if you can get a better deal. This tax-free savings option will save you many pounds over the years.

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