Friday 1 March 2019

Finance Fridays – Are ISAs still worth it?

We were getting some financial tips for new parents in last week's Finance Fridays. This week we are talking about ISAs and if it is worth still using one. This April is the 20th anniversary of the first Individual Savings Account (ISA) being launched. At the time they were very attractive to savers and investors as no tax was paid on the interest and usually the interest rate was higher than other savings accounts. With interest rates still very low and the £1,000 tax-free interest allowance that was introduced in April 2016 it begs the question – are ISAs still worth it?

If you have a large amount of savings – The Personal Savings Allowance is £1,000 for standard rate tax payers, £500 for higher rate tax payers and zero for additional rate tax payers. This means a standard rate tax payer can earn up to £1,000 in interest in a tax year without paying tax on it. A Cash ISA allows you to put in £20,000 each year and whatever interest you earn on the total amount will be tax-free.

If you are a first time buyer
– If you are looking to buy your first home then a Help to Buy ISA can help towards your mortgage. It is quite restrictive as to how much and when you put money in but after that the incentive is very attractive. When opening it you can put in £1,200 in the first month and then £200 each month thereafter. Once you reach £1,600 you can apply to withdraw the money if you are going to buy your first property. This is when the 25% bonus is applied. The maximum bonus you can receive is £3,000 which means you can save up £12,000 in a Help to Buy ISA to get the maximum amount of bonus. You will also receive interest on your savings. You can open a Help to Buy ISA from the age of 16 so it could be worth doing on your children's behalf to help them get on the property ladder.

If you want to save for your retirement – The introduction of the Lifetime ISA provided an alternative to pensions or indeed a top-up. The main snag is that you have to be under 40 in order to open one. The maximum amount you can invest in one tax year is £4,000 but the bonus payable is 25%. Once you reach 50 the bonus will no longer be paid but you will still get the interest on it. You can withdraw the money in part or in full when you turn 60.

Do you invest in ISAs? Did you know about the different types of ISA available?

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Finance Fridays

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