An ISA, otherwise known as an individual savings account, is a tax-free investment vehicle that will allow you to put your money to work and maximise the potential for returns via interest. This type of savings or investment accounts shields it from income taxes, capital gains taxes on dividends, and more. We believe that ISAs are an innovative way to make your money work for you; with tax-free savings, there’s no income or capital gains taxes and the returns on investment can be maximised given that ISA allowance shields it from taxation.
Your ISA will be based on a fixed or variable rate of interest, so you can choose the option that is right for you. Fixed rates are great if you want to know exactly what your returns will be, but variable rates of interest could make a bigger impact on your savings in the long run.
ISAs are available to everyone and can be used to save for a house deposit or retirement. When you invest in an ISA you are protected from capital losses and free to benefit from any growth that your investment may make – unlike saving in a standard bank account where tax is deducted at source and all returns after this have already been taxed.
You can put any amount into an ISA as long as it’s £60 or over each tax year; however, this limit does not apply to cash-only ISAs. It is important to remember that once you have opened and contributed to one ISA, then you cannot open another during the same tax year. This means that those interested in setting up two valuable ISAs should consider doing so at different times of the year.
An ISA may offer additional benefits depending on which provider you decide to go with, such as additional interest and rewards for regular savings. However, the most important factor to consider when choosing your ISA is whether the rate you are offered will best benefit you in the long run.
The decision of which ISA to set up may be more difficult than usual this year because of a change in government policy regarding variable rates of interest. The Bank of England has stated that they intend to keep base rates on hold until 2014; however, lenders have not been so reserved with their own rates. In fact, currently, some competitive fixed-rate savings accounts offer better returns than many banks’ current variable-rates products. This means that if you were thinking about opening an account with a bank, then it could pay off to do some research into alternative providers.
Researching providers can be a challenge, however, especially if you don’t normally take the time to compare rates and providers. Fortunately, there are some easy tricks that can help make your search a little easier. A quick Google search for ‘best ISA’ will direct you to Bankrate’s current top picks, while Money Saving Expert has created a table listing the best-value ISAs for this tax year.
Caveat emptor! Before rushing in to open an account with one of these providers, it never hurts to check out what independent reviews they have floating around on the internet—a simple Google search should turn up plenty of past reports. Additionally, any reputable provider will be happy to forward you additional documentation detailing their products and services whenever asked.