The Individual Savings Account (or ISA) is a method of saving which is approved by the government. There have been changes made to the ISA in 2015 and this has now been re-named as the NISA (new ISA.) These changes have made the ISA more appealing and it now offers more flexibility than in previous years.
Types of ISA
There are two main types of ISA. The stocks and shares option is for savers who are looking at long term returns and are open to the risk associated with investing in the stock market. There is the potential of good returns through the stocks and shares ISA, especially if you you elect to work with a professional service to manage your account. We recommend checking out Nutmeg’s stocks and shares ISA if you’re interested in this, but lack the time and expertise to manage such an account directly.
The other popular type of ISA is the cash ISA. This is ideal for savers who want instant access to their cash and are looking more at short term returns than long term gain. Within the cash ISA, there are two options. The variable rate ISA, which has rates which are, as the name suggests, variable and you can get access to your money quickly. The fixed rate ISA has a set rate for a set period of time and you may have to meet some conditions to be able to access your money quickly. The stocks and shares ISA’s are made up of the self-select ISA, where you choose how much to invest and where. The managed ISA is where your money is managed by an expert investment management company, like the aforementioned Nutmeg.
There are several benefits to using the ISA over other types of savings accounts. The main advantage is that you can benefit from tax efficiency, with an ISA allowance of up to £15,000 in the tax year. It is also good for long term investing, especially if you save with the stocks and shares ISA. There is lots of flexibility with the cash ISA, as you can enjoy instant access to your money. The ISA allowance is on an individual basis so everyone has this limit, as long as they are over 18 years of age and a UK resident. Under 18’s can take out the Junior ISA, which is ideal for early saving for the future.
There are various terms in place for access to the ISA. You must be over 16 to take out the cash ISA or 18 for the stocks and shares ISA and be a resident of the UK. You can take out one cash ISA and one stocks and shares ISA in the tax year period of April to April, however you are still subject to the confines of the ISA allowance.
As discussed previously, there are limits set on the amount you can put in, due to the tax benefits associated with this savings account. The new ISA (NISA) limit is £15,000. With this, you can save up to £15,000 in a cash ISA or £15,000 in a stocks and shares ISA. You can also choose to split the ISA allowance between both of these accounts. You are entitled to take out one cash ISA and one stocks and shares ISA, as long as you adhere to the allowance.