Spring – and even more important the new tax year – is here. It’s the perfect time to start checking on your ISAs, dusting off those old accounts, disposing of any underperformers cluttering your portfolio – and planning how to invest this year’s allowance.
Polish up those ISAs
Tax-efficient savings accounts known as ISAs (Individual Savings Accounts) are an investment must for most people – because they protect the interest your savings make from the taxman.
They let you save cash or make real investments with stocks and shares tax efficient. The government sets a limit on the amount you can invest each year, currently £20,000 in the 2019/20 tax year. They are also very simple to set up, and use.
However, there are two big mistakes that are commonly made.
The first is thinking that you can have only one ISA and putting your annual allowance in it year after year.
The second error is to set up a new account every year, only to have them all deliver potentially low returns.
An ISA is a tax-efficient wrapper that ring fences funds within it, where you can split or amalgamate your funds as you want and once your money is protected by an ISA, you can transfer it to another.
Where should you move your ISA funds to?
If you are dissatisfied with the returns from cash saving in an ISA, you might want to consider a Stocks and Shares ISA. As the name suggests, the money will be invested in stocks and shares rather than left as cash, and although the risks are greater – for example, the returns are not guaranteed and it is possible that you may not have access to the Financial Services Compensation Scheme currently set at £85,000 per institution – as an investment the returns could potentially be rather more appealing depending on your investment goals and attitude to risk.
You may want to move your ISA savings to one that delivers the best returns – and it is easy to do. But be sure you are comfortable with the level of risk you are taking with your money.
It is however worth noting, that equity investments do not offer the same capital security as deposit accounts.
How to move an ISA
First check there are no restrictions from your current ISA provider such as an exit penalty. Then, make sure that the new provider allows you to “transfer in”, which means that you can transfer money from previous ISA years. ISA providers must let you transfer out, but it is not a requirement to allow transfers in.
Any money you take out of an ISA loses its tax-free status – so ensure that you open your new ISA first. You will need to complete an ISA transfer form with all the relevant account numbers, as well as your permission to move it.
Get some help
Spring cleaning your ISA should be straightforward, but when it’s your money, it is only natural to be cautious. If you would like some help to ensure that you are doing the right thing, you don’t have to take a DIY approach. Call us at Continuum for the help you need.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested. Past performance is not a guide to future performance.
The Financial Conduct Authority does not regulate deposit accounts.