23rd January 2019 at 1:29pm
With the end of the tax year in sight on 5 April, you’ve still got time to make the most of your remaining tax-free allowances, such as ISAs (Individual Savings Account).
ISAs offer generous tax benefits. As well as your yearly allowance (it’s £20,000 in the 2018/19 tax year and the same next year), any investment growth in a stocks and shares ISA is tax efficient while interest from a cash ISA is tax free.
So now could be a good time to consider investing into one or saving more.
A stocks and shares ISA or a cash ISA?
Generally you’re likely to get better long-term returns from a stocks and shares ISA as your money is invested. This is particularly true at times when interest rates are low, as they have been in recent years. So if you’re prepared to keep your money invested, ideally for at least five years, this could be a good option for you.
However, there aren’t any guarantees with investing and the value of investments can go down as well as up, and you may get back less than you paid in.
So if you’re not prepared to take any risk with your money, you might want to consider choosing a cash ISA, which isn’t invested. You get your money back with a bit of tax-free interest on top and it can be great for saving money in the short term.
Where can you invest your money?
Different stocks and shares ISAs offer different investment options, so it’s worth shopping around to find the best one for you. Funds are the most common type of ISA investment, but some ISAs also let you invest direct in stocks and shares, and bonds.
Tips to help you choose the best investments for you
Think about how much risk you’re prepared to take
The more risk you take, the more potential you have for higher returns. But on the flipside, there’s more possibility that the value of your investments will go down, particularly in volatile markets.
Thinking about when and how you’re planning to use money from your ISA in the future may help you decide how much risk you’re happy taking. In turn, this can help narrow down your choices.
Consider ‘ready-made’ funds
These usually include a mix of investment types and are designed to take the hard work out of investing. The good news is experts will manage them on your behalf (charges may apply). So if you’re new to investing or want to save time choosing your own funds then this could be a good option for you.
Think carefully before following the herd or going for the latest trend
You might see certain funds mentioned a lot in the press or on social media. That doesn’t mean they’re necessarily the best choice for you.
Look carefully at your options and make sure that what you choose to invest in is aligned to what you’re saving into your ISA for and what level of risk you are willing to take.
See what the experts are saying
Many investment companies have teams which analyse markets and give their views on the outlooks for different types of investments.
Aberdeen Standard Investments’ Head of Global Strategy, Andrew Milligan, gives us a snapshot of this every month in his Market View.
Use your ISA’s cash account
Most stocks and shares ISAs also have a cash account, so you can keep your money there until you’ve decided where to invest it. But if you don’t plan on investing your money then a cash ISA could be a better option for you.
So, give yourself plenty of time ahead of this year’s tax year end deadline on 5 April if you want to make the most of your ISA allowance.
Please remember that the value of your investment can go down as well as up and may be worth less than you paid in. Laws and tax rules may change in the future. Personal circumstances also have an impact on tax treatment. The information here is based on our understanding in January 2019 and should not be regarded as financial advice.