When people approach the world of investment for the first time it is likely they will be overwhelmed by the vast number of financial possibilities available. As a matter of fact, nowadays there are plenty of options not just for seasoned investors, but also for first-time ones. Among these, Individual Savings Accounts, which are also called ISAs, are a specific and new type of account which let investors invest in a variety of products in a tax-efficient way. In fact, the money collected investing in an ISA is exempt from Income Tax and Capital Gains Tax. However, the total amount you will earn by opening this type of account will basically depend on the performance of the investments, so there is always the chance of getting less than what you have deposited.
Factors to consider
If you’re considering having an Individual Savings Account, you should know there are four types available. Any UK citizen who meets the requirements is entitled to save money in each of them. Are you interested in shares, bonds and stocks? Do you want to be able to purchase and sell them? You can check Moneyfarm stocks and shares isa, in this case this is the specific kind of account that could be right for you. If you want to know more about ISAs, here you are some other characteristics:
- A wide selection of alternative investments: Individual savings accounts (ISAs) provide consumers a wide range of investment possibilities. Individuals can put their money into stocks, fund shares, bonds, gilts and other assets based on their preferences. For a safer profile, a cash option is also available on a specific account.
- Tax-free withdrawals: unless they have a fixed-rate account, investors can withdraw money from their ISA at any moment and pay no fees. Of course, this isn’t a smart idea, especially at first, because it can drastically reduce your revenues.
- Account transfer: an ISA can be transferred to a new provider after it has been opened. The original one does not need to be kept up to date for the duration of its existence. It’s common to switch providers, especially when interest rates are set to rise and the money can also be moved between other types of ISAs.
- Inherit ISAs: if you have a partner and one of the two dies, the account can be passed to the other person. It happens because of an inherited ISA permit, that is a payment equivalent to the amount paid up to that point.
Requirements to open an ISA
Are you wondering what are the requirements to open one of these accounts? You must be at least 18 years old and resident in the United Kingdom. An ID card is necessary. Individual circumstances determine whether you are eligible to invest in an ISA, and all tax laws are subject to change. You will be able to save up to £20,000 for the current tax year 2022/2023, with one account type or dividing the amount among more types of ISAs. Do you want to know where and how? You can refer to banks, credit unions, crowdfunding companies, stock brokers, peer-to-peer lending services, building societies or other financial institutions to open your ISA.
Withdrawing money from the savings account
What happens if you need to withdraw money from your ISA? Taking an amount from an Individual Savings Account is going to affect your annual ISA allocation. This does not happen if you own a flexible cash ISA. As stated above, the limit is £20.000 for the current tax year. When you withdraw money from an ISA, most of them deduct a percentage of your yearly limit. This means that if you reach the ISA limit and then withdraw money, you won’t be allowed to re-invest the money in the same fiscal year. How does that actually function in practice? Let’s use an example to illustrate the point. You deposit £10,000 to an ISA throughout the current fiscal year. Then you withdraw £5,000 before the end of the tax year. The following sums are still available for deposit: the maximum amount you may invest is going to be £5,000 for most ISAs, but if it’s a flexible cash ISA, you can invest up to £10,000.