MONEY MATTERS: By Scott Woods
Individual Savings Accounts (ISAs) were introduced in 1999, in an effort to provide some helpful tax breaks to people looking to save for the future. They’ve traditionally taken two forms; cash ISA accounts and stocks and shares ISAs.
In recent years, other options have been launched by the Government, notably Junior ISAs for youngsters under 18 and Help to Buy ISAs to go towards a deposit for a home. In addition, there is also a Lifetime ISA (LISA) which can be used for a property purchase or help towards retirement.
If you’re a keen saver, it’s likely you’ll have come across cash ISAs at some point. These savings accounts allow you to put aside a set amount each financial year (£20,000 in 2018/19), with any interest you earn on your money tax-free.
Stocks and shares ISAs broadly work in a similar way. They’re designed to be tax-efficient, while the same annual limit applies. But by introducing an investment element, they have a much different approach to risk.
As their name suggests, cash ISAs enable you to make cash deposits in a savings account. The returns you get on your money, while tax-free, are determined by the interest rate which your account pays. Ultimately, to avoid the risk of your savings falling in value, you may have to accept lower longer term returns.
In contrast, stocks and shares ISAs allow you to aim for stronger returns by placing your money in a range of investments. In exchange, you must be willing to take on a degree of risk, accepting that the value of your investments could go down as well as up.
The value of investments and the income from them can go down as well as up and you may get back less than you invest. The value of tax savings and eligibility to invest in an ISA depends on personal circumstances. All tax rules may change in future.