Let's talk about ISAs

The industry abbreviate to this is the ISA (Individual Savings Account) but in simplistic terms it means the ability for an individual who is aged over 18 (16 for a Cash ISA) to save up to £20K per annum (2020/21) within each tax year (which runs from the 6th April to following 5th April) without paying tax* on the growth or proceeds.

To of the most common types of ISA are cash and stocks and shares (an investment in companies which are listed and traded in the stock markets).

You can have more than one ISA open at any time but it is crucial that you do not exceed your annual limit across the total holdings of your ISAs. You are entitled to open one Cash ISA per annum but you can have multiple stocks and shares ISAs.

CASH – your money will grow by the rate of interest the provider has agreed to pay. Shopping around for the best interest rates is important.

STOCKS & SHARES – slightly more complicated. Your money will grow based on how well the companies you are invested in perform. Your money will go up and down based on the performance of the funds. This means that the value can rise and fall on a daily basis and you may get back less than you originally invested.

What you intend doing with this money and when you plan to withdraw it has a bearing on which of these two options is suitable. The length of time you wish to leave your money without touching it can determine if you should do cash or stocks and shares. Generally, as a rule of thumb, the longer (5 years+) you can leave the money without taking money out then Stocks and Shares and the shorter the timeframe (2-5 years) then cash.

*Beneficiaries potentially liable to Inheritance Tax