A Simple Guide to ISAs: What You Should Know

A Simple Guide to ISAs: What You Should Know

ISAs or Individual Savings Accounts offer one of the best ways to save or invest your money without having to worry about being taxed. Those who want to do either of these things should consider using an ISA. While some savings accounts require you to pay tax, these do not. There are many benefits associated with using these financial instruments that you should know about. It’s a good idea to learn as much as possible about the different types of ISAs before deciding which you want to utilize.

Cash ISAs

A cash ISA is the simplest and most direct option you will have. It is nothing more than a savings account that the government can never touch, regardless of your returns. There are fixed term bonds, regular savers, bad credit loans and instant access accounts that you should look into. The only limitation on these ISAs is that you can’t open more than one per year.

Stocks and Shares ISAs

A stock or share ISA will let you invest your money, shares or bonds so you can keep all of the returns without giving any to the tax man. It is traditional to make investments through a broker, which you must pay a fee for. While it’s true that stocks and shares ISAs can yield bigger returns than savings accounts, there is also a lot more risk involved. You never know what will happen with any investments you make, so you’re always taking a chance.

Innovative Finance ISAs

You will find that innovative finance ISAs are intended for those who want to invest in peer-to-peer lending. You can lend money to either a business or an individual person and not have to worry about being taxed. While not many companies offer these ISAs, the number is definitely growing. A majority of businesses that offer this option are peer-to-peer lenders. You are still taking a chance, as the person you lend the money to might not pay it back. Legitimate providers offer a back-up fund in some cases.

Help to Buy ISAs

A Help to Buy ISA is a scheme run by the government for those who are trying to save enough to put down money for a mortgage. There are certain requirements for qualifying, such as being a first-time buyer who doesn’t own any property in the UK or anywhere else. All of the savings will be tax-free, and it can be a tremendous help when trying to buy a house.

The government will match your savings contributions up to 25% of what you put in. The limit is £12,000, which means the government puts in £50 every time you contribute £200. Many people throughout the UK have been able to buy new houses because of this scheme.
You can begin by putting £1,000 in your ISA, which will provide you with a 25% contribution from the government.

Some of the other requirements for getting a Help to Buy ISA include:

  • Be at least 16 years old.
  • You are buying a home that is worth less than £250,000 or less than £450,000 in London.
  • Must be purchasing a property in UK
  • This is your first and only Help to Buy ISA

It is important that you carefully review the different requirements for getting this type of financial help before going forward.

Once you have at least £1,600 in your account, you can claim your bonus whenever you want. All bonuses must be claimed through a solicitor. After five years have passed and you have £12,000 saved, you can claim your bonus of that amount from the government.

Lifetime ISAs

In 2017, the Lifetime ISA was initiated. The government puts down 25% of everything you get from savings and investments. With this ISA, you can continue to earn the bonus until you get to 50. You earn interest on the bonus because it is paid on a monthly basis. There are, however, a number of limitations on how you can use the money. If you do not use it to pay for your first home, you cannot access it until you are at least 60 years old. It is technically possible to get it before then, but there is a massive penalty you’ll have to pay.

Final Thoughts

Individual Savings Accounts can be incredibly helpful, especially for those who want to buy their first house. If you are ready to begin investing or saving your hard-earned cash, it is important to at least explore this option. Take a close look at the various types of ISAs so you can find one that best matches your financial goals. A Help to Buy ISA could be exactly what you need to get your first home if you are struggling to save enough to make a down payment.