You know how celebs like Jimmy Carr and Gary Barlow dodged tax because they had fancy accountants? Well, here’s me saving you a few quid – because Isas ARE tax loopholes, but they’re totally legitimate and no-one is going to hate if you stick your money in an Isa (or make you apologise on national TV).
Isas are tax-free savings or investment accounts, which are offered by banks, building societies, insurers, asset managers, and National Savings & Investments (NS&I).
But here’s where it gets a little complicated, because there isn’t just one type of Isa – they come in all different shapes and sizes, depending on what you need/what you are looking for.
A cash Isa is your standard Isa, which is pretty much just a like a normal savings account, expect there’s a limit to the amount you can put it. In the 2016/17 tax year, it’s £15, 240 (which would be nice eh?), but going up to £20,000 in April 2017. What’s important to note, is that there is no tax to pay on the interest you earn.
Instant cash Isas
This type of cash Isa allows you to take your money out whenever you want (although, you’ll probably find you get a lower interest rate than you would it you agreed to lock your money away for five years).
Some will let you withdraw as much as you’d like, whenever you like – while others will put limits on this.
It totally depends on your situation, but I personally have always kept away from these Isas, because I know that I will dip into my savings if I have easy access to it.
Also, because these kinds of Isas have variable rates of interest, you could potentially see your interest rates drop. That being said – if you need access to your money, this isn’t a bad way to go – just keep your eye on it.
- Virgin Money 1.01% – You can take your money out three times in a year without being charged.
- NS&I – 1% – You can withdraw from this account as many times as you like without being charged. HOWEVER, this rate is dropping to 0.75% on the 1st of May.
- Post Office – 0.9% – You can make unlimited withdrawals with for over £10
Fixed-rate cash Isas
If you have a chunk of money you want to put away for a while, so it makes money – you may want to consider putting your money into a fixed-rate cash Isa.
With these Isas, you can’t touch your money once you put it in (unless you pay a seriously hefty fee or reduction in interest rate).
You put your money away for an agreed amount of time -usually between one and five years – which gets you a higher interest rate. As a general rule, the longer you put your money away without touching it, the higher your interest rate will be, as you can see below.
Regular savings cash Isas
If you have a savings goal (For me, its always gong on holiday – but do need that attic conversion…), and want to save up a decent amount over a few years, a regular savings cash Isa is potentially for you.
So these cash Isas will pay a fixed rate of interest over a set period (tends to be a year), and you have to put money into your account every month.
Just like the fixed rate Isa, you probably won’t be able to withdraw any of your money without being penalised for it.
Help to Buy Isa
I’m a big fan of the Help to Buy Isa as it does what it says on the tin – will help you buy a property if you’re a first time buyer. If you want to buy a house and are saving up for a deposit, you need one.
For every £200 you put into your Help to Buy Isa, the government will add an extra £50 towards a deposit on your first home, up to a maximum of £3,000. That’s pretty amazing, and would be criminal to miss out on.
Stocks and Shares Isa
If you’re wanting to potentially earn a lot of money back from your Isa, and are happy to take some risks – consider a stocks and shares Isa.
Really simply, a Stocks and Shares Isa is a tax-efficient investment account that lets you put money into a range of different investments.
Investments could include unit trusts, open-ended investment companies and investment trusts, as well as government bonds and corporate bonds. Don’t panic, it’s not necessary for you to be a savvy trading expert to have one of these accounts.
So, unlike with other cash Isas, you should only invest if you’re prepared to take the risk that your investment could go down, as well as up.
- Hargreaves Lansdown – £100 initial lump sum, then £25 per month
- AJ Bell Youinvest – £500 initial lump sum, and £25 per month for regular investors
- F&C Investments – £500 initial lump sum (per trust), and £50 per month (per trust)
- Fidelity – £500 initial lump sum, then £50 a month
Update: 23/07/2019 – F&C’s saving schemes have adopted the BMO name as part of a rebranding. Details can be found here.
Innovative finance Isa
This kind of Isa lets you invest in peer-to-peer lending – where you lend cash to individuals or small businesses without paying tax.
- Lending Crowd – 6% p.a – You’ll invest in business loans and will need £1,000 to open
- Crowd2Fund – 8.7% target gross – You’ll invest in business loans and need £10 to open
- Lending Works – 4.5% annualised – You’ll invest in unregulated loans and need £10 to open
Remember to change up your Isas
I got my first Isa when I was 16 years old and I remember it having an interest rate of around 6% (don’t expect that these days!). I had a bad accident and got compensation for it (whole other story), so needed to put my money somewhere.
My money sat in my account, tax free for years – till I was 21 years old and wanted access to it. To my horror, the interest was no longer 6% – and it hadn’t been for years. It was 0.something.
If you’re not getting the best interest rate on the market – switch! You’re entitled to do so. Trust me, check up on those old Isas.
Have you got an ISA? What kind? Also – remember when you could get 6% interest? Those were the days eh? Let’s chat in the comments.