With the maximum amount that can be saved in an ISA (Individual Savings Account) having increased to a very generous £20,000 in April 2017, there is no better time to start saving into an ISA.
One of the key attractions of ISAs is the tax benefits it provides savers. You will not have to pay tax on the interest in any ISA.
To enjoy the full benefits that ISAs offer, it is important to first be aware of the different types of ISAs and choose the one most suited to your needs, then start looking into the best ISA rates of your chosen option.
With there being seven different types of ISAs, choosing a suitable one may be a tricky exercise. Here we identify the key features that differentiate the different types of ISAs.
This is a tax-free savings account set up by parents or guardians for their children. For the tax year 2017/2018, parents or guardians can save up to a maximum of £4,128 in a junior ISA.
Only children under the age of 18 and living in the UK can have a junior ISA. The child cannot withdraw any money from the account until they reach 18 years old.
Compare Our Top 10 UK Savings Rates
This is regarded as the most popular type of ISA. Savers invest cash savings into a cash ISA usually to protect savings from both income and capital gains tax.
The maximum amount that can be saved in a cash ISA increased to £20,000 in April 2017. You must be at least 16 years to open a cash ISA.
Stocks and shares ISA
Stocks and Shares ISAs are savings accounts that are linked to investments.
This means that when you save into a stocks and shares ISA, your savings are invested into various investments such as corporate bonds, shares and unit trusts.
Many of these investments are high risk and can provide a good return if they perform well.
Help to Buy ISA
The Government introduced this ISA to help first-time buyers buy their first home.
You can save up to £1,200 in the first month you open the account and then up to £200 per month subsequently. The Government will contribute a 25% bonus when you complete the property purchase.
There are restrictions on the value of the property to be funded by a help to buy ISA. These ISAs are only available for properties up to £450,000 in London and £250,000 outside London.
This is a variation of the help to buy ISA. The difference is that a lifetime ISA was introduced to help people save to buy their first home and/or retirement.
The main difference with the flexible ISA is that you can withdraw and replace your ISA savings without impacting your £20,000 allowance.
Innovative Finance ISA
This ISA involves peer to peer loans where the savings you deposit are loaned to other individuals or start-up businesses.
By doing your research prior to opening an ISA, you can maximise the benefits of your savings account. But don’t forget, many ISAs allow you to switch between them too!