ISAs or Individual Savings Accounts were introduced in 1999 to encourage people to save more for the future. The primary benefit of ISAs is the fact that they do not have to be declared in annual tax returns. Unlike private pension and other investment options, you can take out money from your ISA without paying any tax on it. With these accounts, you can save and invest up to £20,000 in the 2019/2020 financial year. You should note that the limit is updated regularly to adjust for inflation. In this guide, we will cover everything you need to know about ISAs.
What Are the Different Types of ISAs?
The government has introduced many different types of ISAs over the years. They include:
• Cash ISAs- These are savings accounts that are provided by banks and other societies.
• Stock and Shares ISA- These are investments accounts and, as such, they have better returns compared to cash ISAs.
• Junior ISAs- These are tax-free savings and investment accounts for people under the age of 18.
• Help-to-Buy ISAs- This is an account for people who are saving for their first home. It is usually topped up by the government at the end of the year.
• Lifetime ISAs- This is available to people under the age of 40, and it is meant for retirement.
How Much Money Can You Save in an ISA?
The annual ISA allowance changes regularly to adjust for inflation. Before 2017, the limit used to be £15,240. The allowance was raised to £20,000, and this is the limit which is effective for the 2019/2020 financial year. You should note that there are limits as to how much money you can invest in Lifetime and Junior ISA accounts. For Lifetime ISAs, the allowance is £4,000 and for the Junior ISA, the limit is £4,368. These amounts are calculated as part of the £20,000 total annual ISA allowance.
The financial year ends on 5th April at midnight. Any unused allowance will not roll over into the next financial year, so you should try to use up as much of your allowance as possible in the current financial year.
Can You Transfer Money from One ISA to Another?
Yes, you can move money from one ISA to a different one at any time. If you intend to transfer money you invested in an ISA in the current year, you will have to transfer all of it. Money that was invested in previous years can be transferred in smaller portions. You should also note that people under the age of 60 will have to pay a fee if they transfer money from their Lifetime ISA accounts. The fee is currently set at 25% of the amount you intend to transfer.
It is also possible to transfer money from one ISA provider to another. Some providers will charge you for this service.
ISAs have helped many people save and invest money over the years. You should try to use up as much of your ISA allowance this financial year since the unused allowance cannot roll over to the next year. Also, make sure you put your money in an institution with high interest rates.