||Bookmark this page!
Accounts (ISAs) offer investors a tax-free way to grow their money
over the long-term. Investors choose cash ISAs – akin to savings
accounts – or stocks and shares ISAs. Money can also be split
between both options.
Cash ISAs are
fundamentally like regular savings accounts, but the interest
investors earn is tax-free. Currently, people under age 50 can save
£3,600 per annum, but starting in 2010 everyone will be allowed
£5,100 per annum. Most cash ISAs allow investors to instantly access
their money and most provide a solid rate of return. There are those
whose interest rates are low enough to make them unwise, however, so
investors need to research the options.
Share ISAs are
tax-free accounts that hold shares, funds, and other
stock-market-type investments. Investors are allowed to hold bonds
and gilts and any interest earned is also tax-free. The ideal is to
choose bonds issued by sound organisations that provide a decent
rate of return and that have low fees. For the current year, those
aged 18 years and older can invest up to £7,200, £3,600 of which may
be invested in a cash ISA. Investors can also choose to invest the
full £7,200 in a share ISA. Starting in April 2010, everyone will be
able to invest up to £10,200 per annum, of which £5,100 may be
placed in cash ISAs.
Given that everyone has a capital gains tax allowance, share ISAs
may not be necessary if investors only want tax-free savings. The
current allowance for capital gains is £10,200 per annum. That means
investors can make a profit of up to this individual capital gains
limit and not have to pay any tax on it.
Switching Between Cash and Share
transfer money from a cash ISA to a share ISA. The reverse is not
true; investors are not allowed to transfer a share ISA to cash.
This can prove problematic if the market is in freefall. In such a
case, investors can open a self-select shares ISA and hold cash
there, so long as the intention is to invest eventually. Investors
will have to pay a tax of 20% on any interest earned. It's also
difficult to find self-select ISAs that pay a decent return. It may
be worthwhile, however, if investors need to shield their money in
ISAs offer attractive saving options, but investors must do their
research. If it seems too complex, independent financial advisers
can help choose proper investments.
ISAs - probably the largest choice of
ISAs in the UK!