ISAs are a great idea for most people. They protect your savings and investments from the one financial challenge you can be sure will never go away – HMRC.
But although all ISAs can keep the taxman away from your money, you need to know which is right for you now – and for making best use of your £20,000 ISA allowance in 2023/24
The answer could depend on you – and your ISA age.
The five types of ISA — cash, stocks and shares, Lifetime and Junior ISA, and perhaps the innovative finance ISA — can each come into play at different points in your life.
Are you a first-time buyer?
Getting the deposit to get on the housing ladder is always a challenge. A Lifetime ISA could be the answer, because along with tax-free potential growth it can offer cash bonuses which can help you buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA, and can put in up to £4,000 each year, until you’re 50.
You can hold cash or stocks and shares in your Lifetime ISA, or a combination of both, and the government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
You can withdraw money to buy your first home or aged 60 or over. Withdrawal for any other reason and you pay a 25% withdrawal charge.
Are you a younger investor?
A Stocks and Shares ISA could be an effective way to build capital, although there may be risk, and certainly short-term volatility.
However, if you have money that you feel able to put away for several years without touching it, then a Stocks & Shares ISA may have the potential to deliver better returns than cash savings. You should be prepared to invest for at least 5 years.
A Stocks & Shares ISA allows you to invest in a wide range of shares, funds, investment trusts and bonds, meaning you can tailor this you your exact circumstances.
You can opt for a managed fund, where the skills of a fund manager determine the investments selected, or choose a tracker, which will simply invest in all the companies making up a particular index.
Are you a mature investor?
If you are close to or already in retirement, the chances are that security and income rather than capital growth may be your priority.
Both Cash ISAs and Stocks and Shares ISAs can be managed to provide income, but the major advantage of a Cash ISA may be security. Returns on cash savings are less exciting than those from investments, but rates are currently improving, the returns themselves are predictable.
Both cash ISAs and stocks ISAs have the security of the governments Financial Services Compensation Scheme up to £85,000 per individual, per institution. This means that FSCS may pay compensation if a firm goes bankrupt.
Are you thinking about passing on wealth?
If you are a parent or grandparent, you may have built the financial security you need yourself and be thinking about getting the next generation off to a better financial start.
A Junior ISA could be the solution. It can offer all the tax advantages of an adult ISA, but with the needs of children in mind.
You can save up to £9000 a year into a Junior ISA, and the money becomes the property of the child at the age of 18. The cash version of the Junior ISA is the most popular choice for parents and grandparents, but with up to 18 years for the money to grow and recoup any losses, Junior Stocks and Shares ISAs can be a great solution for long-term investing.
Getting the ISA you need
ISA season is upon us, and your £20,000 annual ISA allowance needs to be used carefully. To see the best way to use up any remaining allowance for the current tax year, or to start planning how best to use your 2023/24 allowance, contact us today.
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.
By incurring a Lifetime ISA Government withdrawal charge, you may get less than you paid in.
Saving in a Lifetime ISA may affect your entitlement to current and future means tested benefits.
Stocks and shares ISAs do not include the same security of capital which is afforded with a deposit account.
The Financial Conduct Authority does not regulate taxation advice and deposit accounts.