Did you know that in the old Celtic calendar Halloween (or Samhain) marked the first day of the New Year? Christmas is on the horizon, and you need to come out the other side with your finances intact. So in the Celtic spirit, make a resolution to manage your cash wisely this winter. Choose to invest in an ISA now and pay less tax on your money; meaning your funds grow speedily!
What is an ISA?
Individual Savings Accounts or (ISAs) accept a variety of investments, from lump sums of money to stocks and shares, ISAs offer a unique haven, safe from the tax man. This savings account will shelter you from income tax and capital gains tax, so you can make a nice nest egg of savings. If you want to cushion your financial situation, when you get to retirement age, an ISA is ideal, as your income won’t have to be declared.
You can choose between either cash or investment savings. This year, the maximum amount of money you can stash in your investment ISA is £10,680, which will rise to £11,280 the following financial year. If you don’t use up all your balance, you will lose it next year, so just be aware that your available monetary transfer isn’t cumulative.
£5,340 can go into your cash ISA, but you have to be over the age of 16 to apply for this savings account, and you have to be 18 to transfer money into an investment ISA. Last year, junior ISAs were released, and the only difference between this and an adult’s is that the allowance is lower – £3,600.
Unlike most savings accounts, ISAs don’t deduct 20% tax from the interest incurred on your money. You have to be careful though; there are hundreds of ISAs at various banks and building societies – some of them will try to fleece you with their terms and conditions. New savers, beware of the short term promises some banks make; although they will offer you a fantastic rate to begin with, this may be cut after a few months. Go for long-term rewards.
Avoid ISAs with variable rates, where the banks can change your interest. Will they charge you for transferring funds or making withdrawals?
If you’ve found the right ISA for you, you will need the right documents. Turn up with your National Insurance number, identification, and proof of address. Apply as soon as possible, as you don’t want to be swept up in the last minute dash. Mid-February is the ideal time to apply.
Try your best to amass as much money as possible – the more you place in an ISA, the more you reap the benefits. This may mean cutting down on certain luxuries at home, or switching service providers such as your insurance company – you can save hundreds of pounds if you compare car insurance prices online.
In an investment ISA, you can hold shares, bonds, and funds, allowing them to grow free of tax. Without an ISA, your investment gains will be taxed between 18 and 28%, if the sum exceeds £10,100. Revenue on corporate bonds is taxed at 20%, 40%, or 50% – this all depends on which tax bracket you fall into, but an ISA protects you from this.