Opening an ISA is an ideal start towards meeting your short-term or long-term savings goals. An ISA is a tax-free account with a yearly allowance of £20,000. You can keep all of this money in one single ISA, or divide it among several different ones. To make the most of your tax-free allowance, it’s important to make sure that you choose the right type of ISA, but which one is the best for you? That all depends on what you want your money to do. There are various ISA options designed to meet different needs; so how do you choose the right one for you?
Short-Term Savings or Emergency Funds
If you want to use an ISA for saving but also want to make sure that you can easily access those funds quickly when you need them, an Instant Access Cash ISA might be the best option for you. While your money will gain interest and remain safe from capital gains and income tax, you will be able to withdraw from your funds instantly whenever you need to, making it an ideal choice for an emergency fund. Although Instant Access Cash ISAs tend to have some of the lowest interest rates, they are a good option for savings that you want to maintain access to.
Flexible Investing
Investment ISAs are available in a range of options such as the stocks and shares ISA from Willis Owen. Willis Owen offers flexible investment ISA options, allowing you to save and potentially grow your wealth at the same time. The returns from any investments that you make using investment ISAs are tax-free. This option can be an ideal choice for long-term savings since it is a wise idea to hold investments for no less than five years to allow for the common fluctuations in the stock market.
Long-Term Savings
If you want to open an ISA to save money in the long-term, a Lifetime ISA could be the ideal choice for you. Lifetime ISAs were specifically created for long-term savings and you can benefit from 25% government bonuses on the cash that you put in. You can put up to £4,000 into a Lifetime ISA each tax year, giving you the potential to earn an extra £1,000 on top of your savings. However, the main catch with this type of ISA is that unless you’re using it to fund a property purchase as a first-time buyer, you will only be able to access the savings once you turn 55.
Buying Your First Home
If you’re planning to purchase your first property and want to use an ISA to save up for your deposit, a Lifetime ISA is the best option to consider. If you opened a Help to Buy ISA before November 30th, 2019, you can still use the previous Help to Buy scheme. However, those who do not already have a Help to Buy ISA will need to open a Lifetime ISA. This ISA allows you to save up to £4,000 each tax year and enjoy a 25% bonus from the government to boost your home deposit savings.
Savings for Kids
If you want to put money aside for your kids, a Junior ISA is a great option for savings for those who are under the age of 18. If you are the parent or legal guardian of a child, you can open a Junior ISA on their behalf. You can then pay money into this ISA to gain tax-free interest, dividend income or growth, and your child will be able to access their savings once they turn eighteen. The allowance per tax year for a Junior ISA is £9,000, making it an ideal option for parents who want to ensure that their children have financial security when they become an adult.
Borrowing and Lending
If you are an investor who is willing to lend to businesses, individuals, or property developers who are looking to borrow money, an Innovative Finance ISA or Peer-to-Peer ISA could be the ideal option for you. Typically, the parties looking to borrow will have either been unable to or have chosen not to get a traditional loan, and you will be offered a rate of interest by the borrower when paying back the amount that you invest. Typically, high-risk investments will have higher rates of interest. However, it is worth noting that these ISAs tend to be at higher risk than traditional investments, and as peer-to-peer platforms, they are not FSCS protected.
Weighing Up Your Options
Whatever you want your money to do, there is an ISA option to consider. Having a savings or investment goal in mind is important in order to choose which ISA is likely to serve your needs best.
If you are unsure, a financial advisor or ISA provider can help with the decision.
