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.
- The Junior ISA Account
In November 2011, we are due to see the Junior ISA account being launched. This has been described by some as a way for the government to make amends for scrapping the Child Trust Fund. The Child Trust Fund was a brainchild of the previous government and was meant to get parents saving for their children by giving them a £250 voucher when a child was born. The idea was that the parents could invest this voucher and add to it. Another £250 voucher was given when the child reached the age of seven. The amount that was allowed to be invested each year in the trust fund was £1200 and interest could be earned on that amount as well as the voucher. However the current government scrapped this scheme when they came into power and they have now announced plans to introduce a Junior ISA because of anger over the decision to scrap the existing savings plans for children.
The difference between the Child Trust Fund and the Junior ISA is that the government will no longer be paying vouchers to the child but that the parents can still earn tax free interest by setting up an account for the child. This will mean that the child will have some funds saved up by the time they become an adult. Many of the banks and building societies that are currently providing regular ISAs will also be providing the Junior ISA. The Junior ISA allowance will be higher than the amount allowed for the Child Trust Fund. The amount was planned to be £3000 per year but an announcement was made just this week that this would be increased to £3600 per year.
The money in the Junior ISA cannot be accessed by the child until he or she reaches the age of eighteen and when the child reaches his or her eighteenth birthday, the account will switch automatically to an adult ISA account. Over an eighteen year period the full amount saved could potentially be worth more than £100,000.
A Junior ISA is a great way to give your child a head start in life but you do not have to save the full £3,600 per year. No matter how much you can afford to save each month, you will find that after eighteen years, this will be a significant amount to hand to your child. It is a great scheme for getting parents saving for the future of their children.
- 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.