What is an ISA?

Follow us on Google News:
 What is an ISA?
Image source: eamesBot, Shutterstock

Summary

  • The Individual Savings Account is a tax-free saving account, which enables us to protect our savings and investments.
  • There are different types of ISA available; one can choose depending upon the need.

The Individual Savings Account, or ISA, is a long-term savings account available for the citizens of the United Kingdom, where the deposits are exempted from taxes on its returns. These accounts were introduced by the UK government to encourage people in investing and saving.

However, these accounts are not the right investment options, and it only enables us to protect our savings and investments from tax on capital gains, dividends, and interest.

The amount of money you can invest in your ISA is restricted to an upper limited, which changes every tax year. Like for 2021/22, the ISA allowance is £20,000. The tax year for the UK is from the 6 April current year to the 5 April the following year.

Also Read: What Are the Best Investments in the UK?

The Individual Savings Account can be opened with any bank, building society, credit unions, stockbrokers, or any other financial institutions depending upon the interest rates offered. However, later ISA can be transferred to the new provider, called ISA transfer in.

What are the types of ISA available?

Stocks and shares ISA: This account allows investment in various financial products such as shares, bonds, unit trusts or funds.

Stocks and shares ISA will invest your deposits in the stocks, and the invested company may distribute profit to you as a dividend, which will be free from tax for this ISA. However, the overall value of your investment may fall, and you may end up getting less than the original deposit.

Cash ISA: The ISA account is like a normal saving account. You can deposit or withdraw as often as you want. The only difference between cash ISA and a saving account is the interest earned, which will be tax-free in case of the cash ISA. Although the interest rate offered is too less and ultimately, you will not be able to beat inflation.

It is the choice of an investor to either split their yearly ISA limit in different types of ISAs or invest entirely in anyone ISA. However, unused ISA allowances cannot be carried forward from one year to the next. Apart from these ISAs, some Specialist ISAs are also there.

Junior ISA: In these accounts, parents can invest money for their child’s future. Money invested in this type of ISA is locked till your children’s 18th birthday.

Lifetime ISA:  It is designed to help you save for your first home and your retirement. 

Also Read: Retirement Planning – Tips to Manage Your Retirement Savings 

Innovative finance ISA:  This ISA contains peer-to-peer loans instead of cash or stocks. Peer-to-peer lending matches up investors with the borrowers who need the money. This lending through the online process does not involve any bank in between, and you end up generating more return for the money you have lent.

How to open an ISA?

ISA can be opened over a phone call, by post, visiting a branch or online, for a minimum amount that can be as low as £1 and can go up to £1,000.

You need to provide basic details such as name, address, national insurance number along with a declaration form, which tells that you have understood ISA rules and allowances.

Once the account is opened, you will be given a passbook, certificate, or an online statement to view the details.

Some more on ISA

Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.

Featured Articles

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK