It makes sense to regularly assess how you’re storing your savings for the future and whether or not you’re using the most appropriate long-term solution for you.
Individual Savings Accounts (ISAs) could be a great place to put away money for a rainy day because they help to shield your savings from tax, but there are different types of ISAs to consider, with some being more suited for long-term financial goals.
And if inflation is higher than the rate of interest you're getting on your savings, then Investment ISAs (also known Stocks and Shares ISAs) could potentially help your money to grow further over the long-term. Inflation is the measure of how much goods and services (like food, broadband, and train tickets) have increased over a given period of time.
But if that wasn’t enough to catch your attention, here are five reasons why using a Stocks and Shares ISA to invest your money could help boost your future wealth.
It could offer long-term growth
Money that's paid into an Investment ISA will be invested into a selection of assets (like shares, bonds, commodities and property) that are traded on stock markets. This could give your money the potential to grow beyond the returns you might get in a Cash ISA, but it also means there’s a risk that you could get back less money than you put in.
With investing, your 'return' (any money you make) is based on how much your investments are worth when you sell them, compared to when you purchased them – but there’s no guarantee that they will have gone up in value when you want to sell them.
On paper, a Cash ISA is less risky as your money will gain interest, and will only go up. But the issue is that banks don't always offer interest rates that are above inflation. And if inflation is higher than the interest rate you’re getting, then the value of the money in your Cash savings account or Cash ISA will slowly erode year on year, and you'll be able to buy less with the same amount.
On the other hand, your investments are not dependent on a fixed interest rate, meaning there could be the potential for more growth.
Investment ISAs can be used alongside a Cash ISA
Not all ISAs are appropriate for everyone. Some might be perfect for saving for a house deposit, while others may be more suited to you if you want to save for a shorter period of time. So, do your research before you make a decision.
What types of ISAs are there?
The four types of ISAs available for adults are as follows: Cash ISAs, Investment ISAs (aka, Stock and Shares ISAs), Lifetime ISAs, and Innovative Finance ISAs. You can read our blog on the different types of ISAs to find out more about them.
Although you can have one of each type of ISA, you're only allowed to open one of each per year. For example, you could have an Investment ISA alongside a Cash ISA.
Paying into a Cash ISA could be a nice way to put money aside in order to cover unexpected expenses or save for something like a new car or a holiday. However, Investment ISAs, on the other hand, aren’t really designed to make short-term objectives a reality as investing is thought of as something you do for the long-term. So, if you think you’ll need the money in the first five years, using an Investment ISA might not be the most suited option for you.
Before you open an ISA, assess the level of risk you want to take, clarify your goals, and consider how long it might take you to achieve them.
What’s the annual ISA allowance and how much can I invest in an ISA?
Your annual ISA allowance is the total amount you can put into ISAs during a specific tax year. For the current tax year (2024/25), this stands at £20,000.
The entire amount can be paid into one ISA, or you could split your annual ISA allowance between a number of different types of ISA. However, although you can use your allowance in a Lifetime ISA, the maximum you can pay into one of these each year is £4,000.
Each year, this allowance will reset on 6th April. And if you haven't managed to use it all, you won't be able to carry your remaining allowance into the new tax year.
Having the option to spread your allowance across the four different types of ISAs could allow savers to build up an emergency fund and short-term cash savings in a Cash ISA, and build their wealth over the long-term by investing in a Stocks and Shares ISA.
It's a tax-efficient way to invest
When you invest, you might have to pay tax on the profits you make. But if you use an Investment ISA, this isn't the case thanks to that annual ISA allowance we mentioned earlier.
Basically, you'll be able to keep more of your returns as any extra money make from your investments will be yours to enjoy tax-efficiently.
Just don't forget about any fees you need to pay, and that the ISA allowance (which is currently set at £20,000 per year) could be subject to change in future.
It could be an easy way to start investing
If you’ve been thinking about investing but have no idea where to start, then an Investment ISA could be an option for you. Contrary to what you might think, you don't need to be a financial expert or have in-depth knowledge of stock markets and different kinds of investments.
Some Investment ISAs (like our Stocks and Shares ISA) are managed by qualified investment experts who will do all the hard work of choosing what you invest in, so you don't have to.
At Wealthify, we'll build you an Investment Plan based on how much you want to invest and the level of risk you want to take, then keep an eye on the markets and make regular changes to your portfolio to help keep everything on track.
You can invest with a small amount of money
It's a common misconception that you have to have thousands of pounds in the bank to invest. Some digital investment platforms (like Wealthify) allow you to start with as little as £1 for our Stocks and Shares ISA, Junior ISA and General Investment Account, and £50 for our Personal Pension.
With Wealthify, you can also pay in monthly so that you're investing little and often, or put in a bigger lump sum as and when it suits you. The choice is up to you.
Our Stocks and Shares ISA offers a quick and simple way to begin your investment journey. Make your first step towards your new financial future and open your Wealthify ISA or transfer an ISA to us today.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.
