ISA: what is it and how to choose the right type for you

Nowadays, more and more people decide to become new investors to give their money a chance to grow over time. If a few years ago investors could only count on classic investment accounts, today there are new opportunities. ISAs are among these, and they are particular savings accounts which also gives the account holder the opportunity to invest in a wide variety of fields according to their tastes and preferences. ISAs come with many tax benefits: they are accounts that work in a tax efficient way and protect all deposited money from UK taxes. The name ISA stands for Individual Savings Account, which in simple terms consists of a tax-free savings account suited for investments as well. It also comes in many different types in order to give the holder the freedom to choose the right one according to his financial situation, his investment’s preferences and more. No matter what kind of ISA you’ll decide to open, you should know that every account available comes with a restriction on the maximum sum that can be deposited in a year. The amount is currently set at £20,000 per tax year for all regular ISAs, and at £9,000 for Junior ISAs.

If you are considering to open an ISA, keep reading this article in order to gather all the info and discover how these types of accounts work. This way, you’ll be able to make your own observations and maybe to start investing your money with the aim to see it grow over time, whether your goal is to get only a little amount or you aim for becoming an isa millionaire. However, you have always to take into account the unpredictability of the market, so the amount you’ll get will depend on the performance of your investments.

The many types of ISAs available for British residents

As mentioned above, today UK residents can choose between many different types of ISA. In order to choose the right one for you, you will have to pay attention to the features of each account available. Nowadays you can choose between Stock and Shares ISA, Cash ISAs, Lifetime ISA, Innovative Finance ISA and Junior ISA.

A Stock and Shares ISA is the most common and popular ISA. Intended to invest money in stocks, shares, real estate, bonds and more, you can open one and become a new investor without paying any tax. However, as every other type of investment, it also comes with risk since the amount you’ll get will depend on the performance of your assets.

A Cash ISA is more suited for people who want to put aside their savings and invest in a tax efficient way. As a matter of fact, it is really similar to a regular savings account except that it lets you earn tax free interest.

Lifetime ISA is a particular kind of savings account intended to help you make any kind of life related purchases, such as a new house. All UK residents between 18 and 40 years old are eligible to open this account, which will let you deposit a maximum amount of £20,000 per tax ear. You will also be able to rely on the Government’s contribution, which consists of a 25% bonus, up to a maximum of £1,000 per year.

Innovative Finance ISA is another type of account, very popular among investors who are willing to take risks. In fact, IFISA contains peer-to-peer loans instead of cash or stocks and matches investors who want to lend with borrowers. The interests are usually higher, but as said before, your money is at risk.

Lastly, you can open a specific kind of ISA designed to help you save money for your children: Junior ISAs can be opened by parents or legal guardians to put money aside for their underage children, who will be granted access to it as soon as they come of age.

How to figure out which ISA is the best for you?

Choosing the best kind of ISA for you may not be difficult as you think. You have to base your decision only on your needs and on your financial situation. For instance, if your plan is to save money for your future, a Lifetime ISA might be the perfect choice for you. On the other hand, if you want to put money aside for your kids’ future, a Junior ISA might help you do that. If you’re planning to start a new investment journey, you could opt for a Stocks and Shares ISA, which will give you the freedom to invest in a wide range of fields.