Individual Savings Accounts (ISA’s)

If you want to save back money, then one way to do this is to use an Individual Savings Account (ISA). There is so much information available for ISA’s that it can be difficult to go through and understand completely, the first thing that you will need to realize is that an ISA is a specialized type of savings account. The reason that it is different from other types of savings programs is that you do not have to pay tax on the income that is generated through the ISA. This is a program that was established in 1999 and it allows you to move money around easily.

Because of the way that the ISA is set up you can choose to make a long term investment for your retirement purposes, or a short term investment that will allow you to save money for a project or purchase you are considering. The way that you can do this is by choosing from either a Cash ISA or a Stocks and Shares ISA. In the duration of a tax year you can choose which type of account you want to make deposits into one of each of these types of accounts. So, you could have both a Cash ISA and a Stocks and Shares ISA if you need to different accounts for your needs.

If you are looking into a short term investment, then a Cash ISA would probably be your first choice. This is because it is much easier to move your money around in these types of accounts, so you can make deposits and withdraws as you need. On the other hand, you may find that you also want to have a longer term investment that would allow you to save up money for a home purchase or retirement then you would most likely want to put your money into a Stocks and Shares ISA. However, you should know that because of the fluctuations in the market that it might be possible for your investment to decrease. Also, while it is possible for you to move money from a Cash ISA into a Stocks and Shares ISA without losing your tax free status, it is not possible for the opposite to be done as money cannot be moved from a Stocks and Shares ISA to a Cash ISA.

If you are considering an ISA and are looking at different ISA managers then you will want to make sure that you are getting the best rates. This is because a certain ISA may pay out at a special introductory rate, but after this period expires you will most likely want to make sure that you look for another ISA manager so that you can find the best rate on the market at that time. There is often a lot of competition for Cash ISA rates, so you should be able to find a good one that will work for you, just be sure to transfer the money. This way you do not risk losing the tax-free status of the money in the ISA by withdrawing it.

Is The Junior ISA Worth Investing In?

If you are upset about the fact that the current government has scrapped the child trust fund then you will probably be looking for an alternative way to save for your child’s future. Thankfully from November 2011, the Junior ISA will be something that you can choose. So will there be much uptake in the Junior ISA considering that many of us are already on a tight budget and can’t afford to save? Well, below is some information which may help those who are wondering about whether the Junior ISA is a worthwhile investment.

How does the Junior ISA work?

The junior ISA will work in much the same way as the traditional ISA which means that you can save without having to pay interest on any tax earned. The difference between the traditional ISA and the Junior ISA is the allowance. The traditional ISA allows you to save up to £10,680 per year split between a cash and a stocks and shares ISA or placed all in a stocks and shares ISA. However the annual allowance for the Junior ISA will be £3,600 per year in a cash ISA and £3,600 in a stocks and shares ISA.

The Junior ISA will belong to the child once it has been opened and they will not be able to access the funds until they reach the age of eighteen but when they are sixteen, they can make the decisions on how it is run.

From November 1st 2011 any child who was not eligible for the Child Trust Fund will be allowed to open a Junior ISA account. The bad news is that any child who was eligible for a child trust fund and received the voucher from the government will not be eligible to open a Junior ISA.

The Pros of the Junior ISA

The Junior ISA has a higher annual allowance than the Child Trust Fund and the major benefit is the fact that no tax will be payable on the interest earned. It is also great for encouraging children to save. If the full allowance was saved each year for eighteen years then the child could have well over £100,000 once they reach the age of eighteen which would be more than enough to get them through university and beyond.

The Cons of the Junior ISA

The main disadvantage of the Junior ISA is the fact that there is no government contribution as there was with the Child Trust Fund. The £250 voucher that parents received from the government was an incentive to set up the trust fund but with no such voucher being offered for the Junior ISA, you would have to wonder whether parents will actually put the Junior ISA into operation.

A cash ISA is, basically, an Individual Savings Account that is based on cash instead of investments. The main benefit of a cash ISA over an investment-based ISA is that the money is tax-free or may be eligible to earn tax benefits. In a way, a cash ISA is very similar to a savings account. The other benefit is that a cash ISA is not as risky as other ISA’s because you are saving the money, not investing it in the market. This means your savings will always be accessible and secure.

A cash ISA works very similarly to a savings account. You make a deposit into the cash ISA, and it begins to earn interest - generally, this interest is paid annually, although some cash ISA’s may pay quarterly or even monthly. A cash ISA is different from a savings account in that it is tax-free, meaning you make more money than you would with a standard savings account. It is also different from other ISA’s in that it is based on cash instead of investments, so there is no worry about losing money on the stock market.

While a cash ISA may look secure, reliable, and attractive with its lack of risk and tax-free status, there are a few things you should take into consideration. First, note that some ISA’s have an introductory bonus, meaning they will pay better the first twelve months. This means you may want to move your cash ISA to another institution after that. If you do, you’ll want to transfer the balance, not withdraw it. If you withdraw it, the funds may be taxed. Remember, too, that you can move money from your cash ISA to a stocks and shares account, but you can’t move it from stocks and shares to a cash ISA.