ISAs are often surrounded by confusion and mystery, many feeling unsure as to whether to place their money in them or not.
Why choose an ISA?
According to experts if you have any savings or investments then you should also have an ISA account. An ISA is a way of saving tax. Every year every person is given the chance to avoid paying taxes on their savings this is essentially an ISA and therefore increases the amount of money they have. ISA should ideally have a high interest rate which also gives maximum profit.
To explain it simply it is best to imagine an ISA as a cake. Every year the tax man comes along and takes a bit from your cake whether it’s chocolate (cash) or strawberry (shares) or both. But every year just before the tax man comes to eat your cake you are offered a piece of cling film to wrap and protect your chocolate and strawberry cakes. The cling film stops your tax man from biting a piece of your cake for the future and stops it changing. In years to come you can unwrap the cake and it will still taste of strawberry or chocolate – An ISA protects your cash for the future.
Different types of ISAs
These allow users to place cash directly into an account where the interest doesn’t get taxed. There are various types such as instant access allowing you to get to your money when you please, fixed rate giving you an interest rate that doesn’t change throughout the time you use the account, and base rate guarantees a rate decided by the varying percentage of inflation.
Stocks and Shares ISAs
Usually managed by Stockbrokers, stocks and shares are placed inside a self select ISA and are available in variable interest rates.
How much can be placed in an ISA?
The maximum amount that can be placed in an ISA is £11,280 of which £5,640 can be cash. It is possible to be flexible with the amount that enters an ISA for instance you can have just cash and leave the other £5640 empty, or use all £11,280 for shares or use a mixture of both as long as you stick to the maximum amount of cash.
All payments should be made before the end of the tax year on April 5th. The longer cash or shares are placed in an ISA the more interest and money you make.