ISA Accounts

ISA Accounts: Are They Right for You?


While many consider bank accounts to be a safe bet in terms of accruing interest over time, the fact of the matter is that there are much better options available. One example here can be seen in what is known as an ISA. An acronym for Individual Savings Account, an ISA is a tax-free method to save or invest your funds. The main difference between an ISA and a normal account is that with a standard account, it is likely that you will have to pay income tax on your earnings. With an ISA, this is not the case. Additionally, stocks and shares ISAs enable you to grow your funds even further. Let's take a closer look.

The Mechanics of an ISA

As mentioned in the last paragraph, an ISA can be considered a tax haven. However, this is only the case up until a certain point. The government sets limits on ISAs each and every year. As of 6 April 2016, the maximum amount that you will be able to deposit is £15,240 pounds. This amount is the same when referring to stocks and shares. The limit of a junior ISA is £4,080 pounds.

A new option within these plans is known as ISA flexibility. This pertains to most cash ISAs throughout the United Kingdom. In essence, you will be able to withdraw cash from your holdings and replace it within the same tax year without being subject to income tax payments. The terms and conditions will vary from bank to bank.

Are Stocks and Shares ISAs Worth It?

We should address this point, for there have been a number of individuals who are looking at ISAs from an investment point of view. The principle behind a stocks and shares ISA is that the bank will invest your money into a broad spectrum of underlying assets. Examples can include (but might not be limited to) equities, standard stocks, blue-chip companies, currency trades and real estate. The point is to capitalise on any growth and thus, to achieve a higher return than would otherwise be possible when compared to interest alone.

You should always ask to see where they are investing your money. The natural risk with a stocks and shares ISA is that the assets could underperform and you might lose some of your savings. However, this is rarely the case and this type of plan could be a great idea if you are keen on the financial markets.

Choosing the Right ISA

Some things to take into account when deciding upon a specific ISA are:

  • The term limit
  • The interest rate (known as the AER)
  • The amount that you are required to deposit
  • The penalties for early withdrawal

It is also wise to choose a well-known lender. Not only will this provide with easy access to your account, but you can be assured that they will follow all of the relevant rules and regulations.

The Top ISA Providers in 2016

The three highest-rated firms that offers ISAs are:

  • Bank of Cyprus UK

This bank offers term limits of three years as well as a nominal interest rate of 1.45% AER. It is covered under the FSCS protection scheme as well; your money will be safe.

  • Nationwide

Nationwide offers a unique plan known as the Instant ISA Saver. Although the current interest rate is 1% AER, you are able to open an account with as little as one pound.

  • Progressive Building Society

This company offers an impressive AER of 2.75% although one-year terms are the maximum. An account can be opened with as little as £20 pounds.