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What are the different types of ISA available?

What are the different types of ISA available?

1 month ago


Instant Savings Accounts (ISA) have been available for over 20 years now. They have been an effective way for individuals to save money and earn tax-free interest. With such, you can save up to £20,000 per tax year in cash ISAs. For you to qualify for an ISA, you should be a resident in the UK and a minimum age of 16. There are many types of ISA namely; cash ISA, Stocks & Shares ISA, innovative finance ISA (known as IFISA), help to buy ISA, lifetime ISA and Junior ISA.

Cash ISA

These are offered through building societies and banks. There are numerous types of cash ISA that you can opt for and they include; regular savers cash ISA, instant access cash ISA and fixed-rate deals with interest often paid without tax.

For your short-term goals then a cash ISA could be a suitable solution and the majority of these accounts are protected by the Financial Service Compensation Scheme (FSCS), protecting your money up to £85,000. But you must always check with the account issuer and the FCA that the company is authorised and covered by the FSCS.

However, if you opt for an instant access ISA, you will be able to withdraw your money regardless of where you are. This option may charge a lower interest compared to others.

Stocks & Shares ISA

These types of ISAs are usually under the management of an online broker. This can either be a platform or a fund management group. Having this type of ISA will allow you to make investments in shares from individual companies, bonds and investment funds. However, Stocks & Shares ISA carry higher risk compared to a cash ISA.

This is attributed to the ever-fluctuating nature of the stock market and as a result, you may get high profits or high losses within the same period. If you want to open a Stocks & Shares ISA account, you should be aware of the various fees charged by the companies. Some companies may also charge you for withdrawing from your savings, change your investments or move your shares to a different company.

If you are looking to save for your long-term goals then this might be the ISA to invest in for you. With this type of ISA, there will be no taxation on your profits.

Innovative Finance ISA

These are new types of ISA that allow investors using Crowdfunding lending platforms also known as peer-to-peer platforms (P2P) to receive non-taxable income on their investments. With P2P lending, borrowers are matched with investors such as property developers & owners, business borrowers or even personal borrowers. This type of ISA usually attracts a higher potential rate due to the underlying risk involved.

Junior ISA

These types of ISA allow parents to save for children below 18 years up to £4,128 per child. The parents hold the account under the child’s name and manage it until they are 16 years old. In addition to that, the child can be allowed to hold only one cash JISA with a single provider and that also applies to the Stocks & Shares held under the JISA.

It can be in the form of cash or shares & stocks with investment gains or interest that are paid without taxation. Also, a parent can transfer the child trust fund account that was previously opened to a junior ISAs but cannot do the reverse. This could be a good tax-efficient investment for your child, and he/she can only gain access to it when they are 18 years old or above. 

Help To Buy ISA

With this kind of ISA, you can save a deposit for your first home by investing up to £3,400 in the initial year of holding and can save £2,400 additionally every year thereafter. These types of ISA were launched in December 2015 for first time buyer’s only. When you use the income from the ISA to buy your first home, you will receive a bonus of 25% on savings up to £3,000. Not to mention, help to buy ISA are a type of cash ISA meaning that you’re not able to hold both within one tax year. Fortunately, some providers may allow you to spread your allowances between the two.

Lifetime ISA

They are a type of ISA available to savers aged 18-40 years and they were launched on April 6, 2017. With this type of ISA, you can pay up to £4,000 within a tax year. Also, you can receive a government bonus of 25% for up to £1,000 per tax year. Even though you are eligible to open this type of ISA from 18-40 years, you will be allowed to make contributions up to 50 years of age. For you to get the coveted government bonus, you must use the funds to buy your first property or wait until you reach 60 to gain access to the money freely. The LISA bonus is usually paid based on contributions. It can be paid to a maximum of £33,000.

Conclusion

Choosing the most suitable ISA to invest in requires a lot of research, compounded with advice from expert financial advisors. Also, you should consider the types of risks and potential benefits involved before settling on one. 

 

You cannot rely on this article for investment advice. Although every effort has been made to ensure the information is correct at the date of publication, your circumstances and the legislation may have changed. Please seek independent financial advice before investing.



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