Individual Savings Account: what is it?

Over the past few years, British citizens have earned a lot of new ways to save or invest their money. Among one of the most popular ways to do this there is the ISA, which can also be called Individual Savings Account. It consists of a particular type of savings account that lets you save or invest your capital according to your preferences. In fact, ISAs give the holder the freedom to invest in a great diversity of financial areas without ever paying any tax on the money put in it. This represents one of the main reasons for the great popularity of these accounts. Today, any UK resident over the age of 16 can open an ISA, and there’s even a particular type intended for underage children. If you’re planning to open an ISA, you should always take into account that investing can be very hazardous. The outcome of every investment will always be unpredictable, for it depends on the market’s constant swings and fluctuations. When opening an ISA, you’re giving your savings the chance to grow but you are also putting them at constant risk. That’s why you should always be prepared to find in your account less than expected. Today, people who want to open an ISA have a wide choice when it comes to the many types of accounts available in the UK. Whichever type you decide to open, you will always have to comply with the annual ISA allowance, which currently amounts to £20,000 per year. Today there are many reasons why you should use your ISA allowance: one of these is certainly the rare opportunity of not paying any tax on your investments. You can also spread your allowance across a diversity of different ISA types according to your preferences. Let’s have a closer look at the many types of Individual Savings Account currently available in the United Kingdom.

Types of ISAs available

Today, you can choose between many different types of Individual Savings Accounts available for British citizens. The most common is surely the Cash ISA, which is the one that most resembles a regular savings account. The only difference is that with a Cash ISA you will never have to pay any tax on the money you deposit into your account. On the other hand, if you’re opening an ISA to start investing, a Stocks and Shares ISA might be an option to consider. This kind of ISA is really similar to regular investment accounts, except for the fact that it works in a tax-efficient way. It also gives you the freedom to choose between many different investment areas. Lifetime ISAs have been invented for people whose goal is to save money for life-related purchases, such as a new house. On the contrary, Innovative Finance ISA is intended to let the holder invest in peer-to-peer lending to earn interest profit. Lastly, Junior ISAs can be opened by parents or legal guardians who want to put money aside for their underage children, who will be able to access their money as soon as they come of age. In this case, the annual ISA allowance amounts to £9,000. When opening a JISA, your underage children will also have the chance to count on the contribution of other family members and friends.

ISA and GIA: their differences

Many people who are approaching the world of investments may struggle to understand the difference between an ISA and a GIA. They are indeed two very different types of accounts. As mentioned above, an ISA can be opened both to save or invest money according to the holder’s preferences. On the other hand, a GIA, which stands for General Investments Account, is specifically designed to invest money. However, opening a GIA requires you to pay contributions according to your tax situation and it has no restriction on the amount of money that can be deposited. Opening a GIA could be a solution for people who already own an ISA and used up the annual allowance or for whoever wants to have the freedom to deposit or withdraw with no limits. On the other hand, ISA gives holders more choice when it comes to choosing the account that reflects their needs. Also, it gives the chance to save and invest in a tax-efficient way, which it’s currently not possible with a GIA.

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