You’ve probably heard of an ISA before, but only a few people know that an ISA is really just an Individual Savings Account. Nothing complex, it just allows you to save your money & earn your interest without paying any income tax… Easy!
You can save up to £20,000 in your ISA this tax year without paying tax on the money you make as interest. Bam.
A tax year is slightly different from the normal calendar year (January to December). The tax year is from the 6th April to the 5th April, the next year.
Who Can Have An ISA?
Pretty much any UK resident can have an ISA account, you just can’t share it because…it’s an INDIVIDUAL Savings account!
To open an ISA you just need to:
- Be 16 or older – You have to be 18 to open a stocks and shares ISA
- Be a UK resident
- Have a N.I Number (national insurance)
What Different Types of ISAs Are There?
There are a few different types of ISAs (Individual Savings Accounts) that you need to know about!
Cash ISAs are super simple! They are just savings accounts that you never have to pay any tax on the interest that you make. Like Lonely Mountain from The Hobbit, the the gold is all yours…Nerd reference…
There are two different types of Cash ISAs:
- Instant Access Accounts: These allow you to put in money (deposit) & take out money (withdraw) whenever you want you.
- Fixed Term Accounts: With these accounts you deposit a fixed amount of money for a fixed amount of time. You give up a bit of flexibility and control for a slightly higher interest rate with Fixed Term accounts.
Stocks and Shares ISAs
If you invest your money in stocks and shares, you should open a Stocks & Shares ISA which will allow you to use your ISA Allowance towards your investments.
Meaning you could make even more money, just be being smart.
Junior ISA: This is for children under 16 to allow them to start saving and trading that toy car in for an Audi the minute they can drive!
Lifetime ISAs (LISA): Lifetime ISAs appeared late November 2019 to replace the old Help to Buy ISA.
Now, if your looking to buy your first home it is perfect!
You can save up to £4,000 in a Lifetime ISA every tax year and the Government adds a 25% bonus on top.
Wait yes, 25%… the Government will add £1,000 to your account when you save £4,000 in a Lifetime ISA, every damn tax year. So if you’re planning on buying your first home, you definitely need to consider opening a LISA, Lifetime ISA.
Innovative Finance ISA: This is used by Peer-to-Peer lending companies, which allow you to lend your money to other people and earn some pretty decent interest.
How Many ISAs Can I Have?
Now we’re talking, everyone always asks about how many ISAs they can have as they are gold!
So, every tax year you can only have:
- One Cash ISA
- One Stocks & Shares ISA
- One Lifetime Savings ISA (LISA)
- One Innovative Finance ISA
- What Are The Best ISAs?