ISAs explained: The smarter way to save
As we start to see light at the end of the long tunnel out of the pandemic, the news is awash with debate over the UK’s current financial plight, talk of negative interest rates, risk of inflation and the important next steps that will be taken to rebalance the books.
Financial planning is vital at the best of times and the desire to devote some time to it right now most likely rings true to many of us seeking to ensure they make best use of hard earned savings that maybe attracting modest rates of interest with the banks and building societies. If you are looking at the prospect of achieving more potential growth with your savings, a Stocks and Shares ISA may be the solution. Find out more in the sections below about how an ISA may help you, plus an overview from Carl McHugh, Tudor’s ISA specialist.
How does an ISA work?
Investing in a Stocks and Shares ISA is somewhere to house your savings with the long term aim of seeking to outpace the potential threat of negative interest rates and higher inflation.
Generically, you can invest up to £20,000 per tax year into an ISA, tax free, with most ISAs offering access to your funds at any time. There are different types of ISA available, such as a Cash ISA that operates very much like a traditional bank account, to a Stocks and Shares ISA where your money is invested in assets such as shares, bonds and commodities. There are also options for Juniors ISAs which has an annual allowance of £9000 PA. Savings can be spread across most mixes of ISA, but cannot exceed a total of £20,000 per financial year.
ISAS are free of Income and Capital gains tax and are viewed as a tax efficient way to save money.
ISAs and navigating an uncertain landscape
We are currently subject to methods of lending that are widely considered as unconventional or as a last resort, such as Quantitative Easing; a monetary policy which means the Bank of England creates new money electronically to buy government bonds. As the long-term impacts of the policy on the economy are hard to predict, a Stocks and Shares ISA is an alternative to traditional savings accounts looking to achieve long term capital and income growth with the objective of overcoming the negative consequences of Covid-19.
The Bank of England have held UK interest rates at 0.1% since March 2020 and commentators are predicting that the UK Monetary Committee may have to face the decision to announce negative interest in the short term. This risk is that we could be faced with having to pay to have a bank account. In addition to this, there is also the threat of high inflation as the government attempts to recoup the money used to fund the furlough scheme and other measures put in place to keep the country from grinding to a halt during the pandemic.
From our expert:
Carl McHugh, one of our Wealth Specialists, is our in-house expert on the market for savings products.
Carl strongly recommends considering ISAs as a potential destination as an alternative to a main savings bank or building society account. “A Cash ISA is exempt from income tax, whereas with a standard savings account, you would pay income tax on any interest earned over £1,000”
With regard to Stocks and Shares ISAs “Tax must be paid on the income and profits made from investments in the stock market however they do serve as a form of ‘wrapper’ to protect savings from tax. This allows individuals to invest in a range of tax efficient savings and investments, and pay no personal tax or Capital Gains Tax at all on the income and/or profits received.”
Is an ISA the right way forward for you?
If you would like to discuss ISA options in a little more detail, Carl would be delighted to take you through everything you need to know so contact us today to book an appointment.
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both. The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
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