ISAs: What You Need To Know

Last Updated on 6th April 2024

Finding the right ISA can be one of the most important steps toward understanding how it can assist you in the future. But what kind of ISA works best for you? And what are the financial limitations of these ISAs?

When you’re ready to take out an ISA to help invest in your future or the future of others, more information can be found here. Until then, here’s what you need to know about ISAs and how they can assist your financial goals.

What Is An ISA?

An ISA, also known as an Individual Savings Account, is an investments and savings method in which people can save money for the future. The funds deposited into an ISA (as long as it remains within the specified limits of the ISA) are tax-efficient and don’t incur any taxation on the interest gained in the account.

For 2022-2023, you can invest up to £20,000 in ISAs without paying tax on the interest you earn. You also don’t need to declare your cash ISA on a tax return. Whilst current returns do not match interest payments that banks are offering due to the increase in the rate of inflation it is still a beneficial savings plan due to its tax-free status.

The figures for 2021 show that there were 11.5 million cash ISA’s in the UK which was a slight decrease in numbers, however the number of stocks & shares ISA’s increased to 3.5 million which proves that they are still a very popular way to invest savings. 

Understanding your annual ISA allowance and how your contributions will affect your savings and investments is critical before deciding which type of ISA is right for you.

The Range Of ISAs To Choose From

ISAs are predominantly taken out in one of the following versions:

Junior ISAs: These ISAs are taken out by parents or legal guardians who want to give more financial support to a child in the future. One of the benefits of a Junior ISA is the ability to save up to £9,000 per year, tax-free. Anyone is permitted to contribute to an ISA like this, and once the child turns 18, they’ll gain full access to the funds saved. 

Lifetime ISAs: These ISAs were made to help savers get funds together for either retirement or putting a deposit down on a first home. The annual limit for a lifetime ISA is £4,000 with the added benefit of the government contributing 25% on whatever you can save during the ISA. 

Cash ISAs: These ISAs work a lot like a savings account, except you’re able to put up to £20,000 into a Cash ISA, tax-free. 

Stocks and Shares ISAs: These ISAs are similar to a Cash ISA, but the money put into the ISA is invested into the marketplace instead of sitting still in the account. While there are more risks associated with this ISA due to market volatility, the potential rewards are also larger. 

Finding The Right ISA For Your Specific Needs

Before making a final decision about which ISA will be best for your financial needs, consider how much risk you’re willing to take. Then take some time to weigh up your end goal in terms of how much you want to save, and whether the ISA is for you or someone else. Once that’s done, you’ll be able to move forward with your ideal ISA and savings plan.

Speaking to an independent financial advisor or directly to your bank is critical in the decision making process for any investment or savings plan. Discover whether a Junior ISA, Lifetime ISA, Cash ISA or Stocks and Shares ISA is the best to place your money into and how they will affect your tax status into your retirement.

Understanding all of the jargon involved in this type of investment is challenging and can be overwhelming so seeking a reputable advisor is critical.

Final Thoughts

Finding the perfect ISA to plan for, contribute towards, and look forward to reaping the rewards for is an effective way to plan for your own future. If you can be sure to keep what matters most to you at the forefront of your mind, you can let it lead you to the best savings and investment plans for your needs.