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) are a great place to put away money for a rainy day, but there are different types of ISAs that are more suited for long-term financial goals.
At a time when inflation outpaces most interest rates, Investment ISAs, otherwise known as Stocks and Shares ISAs, could potentially help your finances grow over the long-term.
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 financial future.
Long-term growth
Money that is deposited into an Investment ISA can be invested into a selection of products (things like shares, bonds, commodities, and property) that are traded on the stock markets. This can 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 you could get back less than you put in.
Money deposited into Cash savings and ISAs on the other hand is subject to less risk. You are effectively guaranteed to get the money you put in back, plus some profit based on the interest rate you’re quoted when you open the account. The issue is that interest rates you get on Cash Savings and ISAs are historically low, meaning the rate you’ll get is typically below 1%, which is also inferior to the current rate of inflation.
When inflation sits above the interest rate you’re getting, the value of the money in your Cash savings account or ISA slowly erodes year on year. On the other hand, your investments are not dependent on a fixed interest rate. Instead your returns are based on how much your investments are worth when you sell them compared to what you bought them for. There’s no guarantee they’ll be worth more when you want to sell them, in fact they could be worth less, which would mean getting back less than you paid and making a loss. But it also means you have the chance to earn higher returns than you could get from Cash ISAs if the value of your investments rises beyond the price you paid, when you come to sell. This is just one of the benefits to investing in an ISA over savings.
Investment ISAs can be used alongside your Cash ISA
Not all ISAs are appropriate for everyone - some are perfect for saving for a house deposit, whereas others are more appropriate for retirement planning - so it’s worthwhile doing your research before you make a decision.
What types of ISAs are there?
The four types of ISAs available are Cash ISAs, Investment ISAs/Stock and Shares ISAs, Lifetime ISAs and Innovative Finance ISAs and you’re only allowed to open one of each per year. Whichever ISA you want to open, you should consider carefully whether they are appropriate for you. For example, you could have an Investment ISA alongside a Cash ISA.
Paying into a Cash ISA is a great way to put money aside in order to cover unexpected expenses. In contrast, Investment ISAs aren’t designed to make short-term objectives a reality and should rather be used to bring long-term goals to life. So, if you think you’ll need your money back in the first five years, using an Investment ISA might not be the most suited option for you. Before you start contributing into an Investment ISA, make sure to assess the level of risk you want to take, list your goals and consider how long it’ll take 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 your ISA within a tax year. For the current tax year, the annual ISA allowance threshold stands at £20,000.
The entire amount can be used in one ISA (except in a Lifetime ISA where you can only pay up to £4,000), or you can split your annual ISA allowance between a number of ISA accounts. With the allowance now up to £20,000 per year, there’s plenty of wiggle room to make the most of your money. Try to use your allowance before the end of the tax year, or you'll lose it forever.
This allows savers to build up emergency fund and short-term cash savings in a Cash ISA, while starting to build up investments in an Investment ISA for the future, at the same time.
A tax-efficient way to invest
Unlike with standard investment routes (that don’t involve Investment ISAs), the profits you make on your investments are usually not subject to capital gains or income tax, up to so you get to keep more of your returns, after any fees that are due to your investment provider.
Simply put, any interest or extra money you make through your Investment ISA will be yours to enjoy, tax-efficiently! Just remember that this tax-efficient benefit only exists for up to £20,000 of investments through your ISA each tax year and will depend on your individual circumstances and rules may be subject to change in the future.
A simplified way to start investing
If you’ve been thinking about investing your money but have no idea where to start, a Stocks and Shares ISA could be the option for you. Some Investment ISAs are overseen by qualified investment managers, who will build an investment plan that’s tailored and suited to you and the level of risks you are willing to take. Better yet, they’ll do all the legwork in monitoring and adjusting your plan if opportunities arise to make your plan work harder.
Begin investing with a small amount of money
Compared to other, more traditional forms of investment, it’s incredibly easy to begin investing in the likes of shares, bonds, and other assets through the use of an Investment ISA. In fact, with digital investing platforms, like Wealthify, you can open an Investment ISA with as little as you like – then simply add to your investment funds over time with monthly or lump sum contributions – you can choose which suits you best.
Our Investment ISAs offer a quick and simple way to begin your investment journey. Make your first step towards your new financial future and transfer an ISA 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.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
