ISA – Overview of Choice
ISA’s – Types of ISA Available
When it comes to investing your money, it is often difficult to know which the best way to go is. Is it better to invest all cash and earn interest, or to have a mix of cash and stocks? The good news is that the old investment limit of £7,200 per year was recently increased to £11,280 per year. That adds up to more tax free savings in your account. You are allowed two ISA accounts for any given year as long as they are not the same type of account. Here we will try to sort out the different types of ISA plans so you can decide better where to put that money to work for you.
A cash ISA is the simplest and most straight forward of the common ISA’s and is generally the safest. You place your money in the account and draw interest at whatever the base rate is at the time of your investment. If you are investing for the short term and want to be able to access your money without any problems, these are the way to go. The only drawback with this type of ISA is a limit in the money you can earn from it. Unlike stocks and shares, with a cash ISA, you are locked into whatever the going rate is at the time you invest. It would be wise to check the competiveness of rates among financial institutions before you make a decision. The cash cap is £5,640 of the total investment limit of £11,280 for the current tax year, which runs April to April. The balance of the investment limit would be available to be placed in a stocks and shares account for better diversification.
Stocks and Shares ISA’s
Stocks and shares ISA’s are a little more involved and can be volatile, but they are a better choice for long-term investing. Basically, once you have chosen your provider, they can recommend a stock portfolio for you, or you can do a little research and pick your own. The advantage that these types of investment accounts have over cash accounts is that you are not locked in to a fixed rate of return, so you can earn greater tax free interest. However, they are subject to market fluctuations and it may be more difficult to access your money should you need it. You can also place the full amount of your annual allowance into a stocks and shares account. A better choice if you can afford to let your money work for you over time.
A newer trend in investing is a so-called “Ethical” ISA. These are accounts that allow you to invest according to your beliefs and values. If you feel strongly about the environment, then an ethical ISA portfolio can choose companies that are in line with this concern. The only difficulty is it may be harder to find a portfolio of stocks that meets with all of your values and ethical concerns.