An ISA (Individual Savings Account) is the first port of call for savers because it offers unrivalled tax breaks.
Keeping your money away from the taxman enhances returns because it means pocketing every penny of the gains. But there are many ISAs to choose from and picking the right one will give better still results.
7 types of ISA
Here’s what you need to know about ISAs and how to choose the best one for you:
Saving into an ISA
From April 2017, savers can shelter a mixture of cash and stocks and shares up to £20,000 in their ISA, which does not need to be declared on any tax return.
This money is also safe from capital gains tax on profits you make from share price increases.
Choosing a cash or equities ISA
The ISA now has equal limits for cash as it does stocks and shares. This means people have complete flexibility over how they choose to save or invest, within the overall limit, between cash and stocks and shares.
Cash savings are lower down the risk scale, but with interest rates so low, the route for higher potential gains is by investing in the stock market.
5 ISA dos and dont's
This kind of investing needs to be viewed as a medium to long-term investment – at least five years – in order to ride out the ups and downs of the market.
Building a financial portfolio with your ISA
If you want to have some of your ISA savings in cash, you'll also need to make sure the account terms are right for you as well as picking a best buy rate of interest. The fixed-term accounts pay the highest rates but have restrictions on withdrawals.
For those who want their money invested, open an ISA with a fund supermarket and select the funds or individual stocks in which you wish to invest. The aim is to pick funds that deliver high returns for the lowest risk - but that also carry low charges.
Alternatively you can seek help from a financial adviser who can steer you towards the funds that are right for you.
Choose the right time to set up an ISA
Invest at the beginning of the tax year and your money is working for the whole 12 months. Many people leave it until the end of the tax year and miss out on a full year of potential growth.
Inherit an ISA from your spouse
The Government changed rules that allow the surviving spouse to inherit savings left in ISAs by their other half without losing the tax benefits.
Before this, the tax-wrapper passed away with its owner and money that had been sheltered became liable for income and capital gains tax thereafter.
Can I inherit an ISA from my spouse?
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