ISAs – So many options but which to choose?
Especially for the young community of today, there are quite a few saving incentives being offered by the government to encourage those that don’t already, to look toward their future. Financial planning can have a stigma of only being relevant for older generations or those with excess cash floating around, but in fact it can have a big impact on the wider population. It’s essential for everyone to plan ahead in the current climate, where our economy could change so quickly.
A key aspects to be aware of is the different type of ISAs available and their rewards. For simplicity, we have broken down an example of the benefits you could receive by saving your pennies in a tax efficient manner. Please see below a projection based on £4,000.00 of savings per year for 5 years;
You can put money from a regular ISA or Lifetime ISA into stocks and shares rather than just cash, this could earn you a higher return, although of course puts your money in a more volatile situation. Our role at A&J is to actively manage Stocks and Shares ISAs to help values grow and to diversify your investment portfolio in case there are any dips in the market that might affect your portfolio to aid reducing your risk.
There is a maximum bonus on a Help to Buy ISA of £3,000.00 which is small in comparison to a Lifetime ISA. It is available only to those aged 18-39, where if you were contributing every year for the whole period you could earn a bonus up to £33,000.00 – quite a significant figure towards your future home!
If you have both a Lifetime ISA and a Help to Buy ISA, you can use the government bonus from one of them to buy your first home. The bonus from a Help to Buy ISA is only paid upon completion of your house purchase, and therefore cannot be used towards a deposit to hold the house prior to exchange, such as a holding deposit with an estate agent.
By saving money in a cash ISA, all of your interest is tax free. If your savings are in a regular savings account, a basic rate tax payer is entitled to earn up to £6,000.00 per year of interest on their savings tax free. However if you’re earning more than this in interest and have already used your personal tax allowance on your salary, then you could be liable to pay tax on the savings interest.
Please do give us a call for more information and bespoke advice on your situation, or have a look around our knowledge centre for more in depth information about ISAs.