There are lots of ISAs out there and they can be a great way to make your money work for you. Do you have one? How often do you pay into it? Do you know the maximum ISA investment you can make? Perhaps you've been thinking about setting one up and paying into it to try and help your financial future? Let's have a look at ISAs, what they are, the differences between them and how much you can pay into them.
What Is An ISA?
Firstly, what exactly is an ISA? It stands for Individual Savings Account and there are a few different options which we'll get onto in a moment. An ISA allows you to save or invest your money in a tax efficient manner. You can protect any returns on your money from income tax, capital gains tax and tax on dividends. Opening an ISA is a great way to put your money to work for you, with one eye on your future. It is worth mentioning though that tax rules can change and the effects any changes have will depend on individual circumstances. There is also an annual maximum ISA investment allowance.
Different Types Of ISA
There are four different types of Individual Savings Accounts that you might come across. Some places might offer all of them, others might pick and choose what they
Cash ISAs
A cash ISA is a savings account that lets you earn interest on your savings without paying tax. This would be based on a fixed rate or a variable rate.
Investment ISAS
An investment ISA is an account that allows you to hold a range of assets including funds, shares, bonds and more. These can go up in value but also down in value. Sometimes they are known as Stocks & Shares ISAS.
Innovative Finance ISAs
If you are looking for a little extra risk, Innovative Finance ISAs lend your money out to borrowers through peer-to-peer platforms. Any interest earned is done so tax-free.
LISAs (Lifetime ISAs)
Lifetime ISAs (or LISAs) can help you get your first step on to the property ladder. They can also be used to contribute to your retirement. You will get an annual bonus of £1 for every £4 you save. This 25% top up from the Government is paid on up to £4000 each tax year.
What Is The ISA Allowance?
The ISA allowance can change every tax year, depending on how it is set. For the current 2021/22 year it is £20,000. It has been £20 since 2017 and will be the same for the 2022/23 tax year. It was only £10,200 in 2010 so the increases have helped more people invest more money tax free. Some argue that it should be more however we will have to wait to see if it will rise.
The £20,000 maximum ISA investment can be used in full on either a cash, investment or innovative finance ISA. You can also split your allowance across the four different types of ISA, depending on account limits. Remember the £20,000 allowance. If you have the money to put into an ISA, choose the right one for you and start saving, tax free, for the future.
