21st February 2018 at 1:53pm
When it comes to saving, it’s worth considering how an ISA can help make your money work for you.
Yes, your pension is there for your long-term savings but what about saving for those things you need sooner. The fact that you don’t normally pay tax on what you save into an ISA or any interest or gains you make, along with the potential for growth that some types of ISAs offer, make them a great way for many people to save for the things they want in life.
Whether it’s saving for a wedding, taking that first step on to the property ladder, or building a nest egg for the kids, at Standard Life we understand everyone has different plans they’re looking forward to.
So here’s our short guide to ISAs
How much can you save into an ISA? It’s now up to £20k a year
With your ISA allowance now sitting at a very generous £20,000 each year, you can save more than ever.
Whether you want to save a little, or the full £20,000, there are a number of ISAs to choose from.
Choose which ISA is right for you
You can save into five different types and even split your allowance across them, as long as you meet some of the conditions.
This means that there is an ISA for everyone, no matter how little you can put away or how long you want to save.
Easy access to your savings: The Cash ISA
If you’re looking to save money in the short term, a Cash ISA could be right for you.
You can access your money easily, so it’s a great option if you’re looking to save for a rainy day.
Do remember that the returns are likely to be pretty low at around 1%, as you only gain the interest rate set out when you open the account. Inflation is sitting close to 3% so can also nibble away at that.
If it’s better returns that you’re interested in and you save for longer, there might be an option more suited to you.
Time to invest: Stocks & Shares ISA
If you’re looking to save a bit more for the bigger things in life, and can save over a longer time, then a Stocks & Shares ISA could be right for you.
How it works:
Your money is invested in stocks and shares or investment funds, so it has the potential to grow more than it would in a Cash ISA and your gains are usually tax free. But remember, investments can fluctuate, so you could get back less than you paid in.
If you like the sound of giving your money the potential to grow but are new to investing, there are ready-made investment options out there, or take a look at our easy option ISA, where we manage your investments for you.
Or, if investing is something you’re comfortable with, you can pick your own funds with our DIY ISA.
Our ISA calculator shows you how much you could save for the future.
One for the kids: Junior ISAs
It could be that you’re looking to build a nest egg for your child to give them a helping hand. Some help with university fees, or giving them a boost to help them buy that first home spring to mind.
If you’re a parent or guardian of a child, you can save up to £4,128 a year in a Junior ISA. You can choose a cash one, or save into a stocks and shares one, to give you the potential for growth, although you could get back less than your paid in with stocks and shares. You could even have one of each if you prefer.
One thing to remember is that any money you save is theirs, not yours. This means they can spend it how they like from the age of 18. And if you were to save the full allowance every year, that could be quite a sum.
If you’re unsure of this approach, you could just save into your own ISA for them instead so that you keep control.
Getting on the property ladder: Help to buy ISA
Getting on the property ladder is an exciting milestone, it’s a moment that really matters for many of us. You typically need to put down a 20% deposit, meaning you’ll need to save thousands of pounds. That’s where the help to buy ISA can help.
How it works:
It’s a type of cash ISA that some banks and building societies offer with interest rates of around 3%.
But the real attraction of a Help to Buy ISA is the government bonus you get on top of this when you’ve bought your property. Think of it as free money to help you with taking that first step.
This could be worth thousands of pounds, turning savings of £12,000 into £15,000 and making saving for your first home that bit easier.
More help to buy: Lifetime ISA
The Lifetime ISA is a newer addition to the ISA family. It’s another great option if you’re aged 18-40 and trying to save for your first home. And anything you don’t use to get a foothold on the property ladder you can choose to spend when you turn 60.
How it works:
Save up to £4,000 a year and get a government bonus of £1 on top of every £4 you save, taking your savings up to a maximum of £5,000 a year. But there are certain things you need to be aware of to make the most of your money.
To keep your bonus and take your money out penalty free, you’ll need to use your savings to buy your first home, or take them after age 60. Otherwise, there are considerable exit penalties.
You can invest your money in stocks and shares, or cash. Find out more about the Lifetime ISA on the government’s website.
There’s a lot to consider when it comes to choosing where to put your savings. So make sure you take your time to think about what’s right for you.
The information here is based on our understanding in February 2018 and should not be regarded as financial advice. Your own circumstances will have an impact on tax, and tax and legislation may change.