When trying to grow your savings, opening an ISA can be a smart choice. With interest rates at a historic low across the board, many people are looking for ways to get more out of their cash. But with so many options available, it can be hard to know which account is right for you.
What is an ISA?
Very simply, an ISA is an Individual Savings Account. This type of bank account means your interest payments will be tax-free, which could give you a little extra boost towards your savings goals. But there isn't just one type of ISA, so you must choose the one that suits your needs the best.
What Types of ISA are there?
ISA accounts are usually split into four categories, the most widely known being the Cash ISA and the Stocks and Shares ISA. See more ISA options offered by Wealthify to find the perfect fit for you.
Similar to classic savings accounts, Cash ISAs don't carry a risk of losing your money. As you add money to your account, you'll receive interest on your savings. The key difference is that this interest will be tax-free. With a regular savings account, you'd have to pay tax on any interest that goes above £1000. If your interest is unlikely to exceed this amount, an ISA may not be for you.
Depending on the ISA you choose, you may have to leave your money in your account for a certain number of years. An Instant Access ISA allows you to take out money as you please, but a Fixed Term ISA means you agree not to withdraw your money without some kind of a penalty. Think about this carefully before committing to any fixed period of time.
Stocks and Shares ISA
While you will have the opportunity to earn more interest on your money with a Stocks and Shares ISA, you do risk losing some of your money as well. With this type of ISA, the account provider will invest your money in various assets that could include properties, bonds and shares. Because of this, this type of ISA will involve a fixed term that you have to commit to.
If you don't mind an element of risk, this ISA could deliver superior returns. It's also a more desirable option for those who like the idea of investing, but don't have the know-how to take the leap themselves. Getting started on the stock market doesn't have to be scary though, just make sure you're well-informed and understand the basics before you invest a single penny.
Requiring a huge amount of commitment, you need to be absolutely sure you want a lifetime ISA before putting your savings in one. Designed to be cashed out once you turn 60 or when you buy your first home, the lifetime ISA can be a big help to first-time buyers or those saving for retirement. If you need to withdraw your money for any other reason, know that you'll lose 25% of the total.