Individual Savings Accounts: how ISAs work

Nowadays, more people are approaching the investment market and they look for new opportunities and products in which to allocate money. In the UK, Individual Savings Account are growing in popularity since they give the possibility to choose if saving or investing the capital according to the needs and risk profile of the holder. Moreover, ISAs come with some tax benefits, since you’ll be not charged Capital Gains Tax on your profits, so you’ll be able to save or invest money in a tax-efficient way.
Today there are many types of Individual Savings Accounts available for UK citizens, such as Moneyfarm ISA which give the holder the possibility to save or invest in different economic fields. One of the most common types is the Cash ISA, which is basically a tax-free savings account, and this is the one which may suit best low-risk profile holders, because the cash isn’t invested. Then, there is the Lifetime ISA which gives the possibility to save or invest for life-related purchases, such as the first house or for retirement.

Innovative Finance ISA is another type of account which lets holders lend money to companies with the goal of earning interest, so you’ll be basically investing money and the chance of losses and always around the corner. Stocks and Shares ISA are also intended for those who want to invest money; thus, you should always consider the market volatility and the risk that comes.

Is there an account designed for underage people?

Another type of Individual Savings Accounts is the Junior ISA, which is an ISA meant for parents who want to save money for their children, even if they’re underage. Thus, Junior ISAs are tax-free savings accounts specifically designed for children. It can also be opened by a legal guardian, and other family members and friends can contribute as well. Your kids will be able to access the money you saved as soon as they turn 18 years old. This kind of account comes in two different types: the first one is called Cash Junior ISA, which is intended for parents who just want to save money for their children. The second one is the Stocks and Shares Junior ISA, which in this case implies that the money put in the account will be invested. When it comes to these kinds of accounts, you should always take into account the risk that any kind of investment involves. In fact, your children might also end up with less than expected: this is due to the market’s constant swings, which make the outcome of every economic move unsafe and unpredictable.

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What is the annual ISA allowance?

Every type of ISA currently available comes with a restriction on the funds you can deposit in a year. This value is called annual ISA allowance and in the UK is currently up to £20,000 per year for Cash ISAs, Innovative Finance ISAs, Lifetimes ISAs, and Stocks and share ISAs. However, the allowance is not the same for Junior ISA: in fact, by opening one you’ll be able to deposit up to £9,000 per year.

Winton Frazier

 "Amateur web lover. Incurable travel nerd. Beer evangelist. Thinker. Internet expert. Explorer. Gamer."

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