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What are ISA’s and are these Good Investments

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Those who have spent any time waiting in line at a bank in the UK or otherwise paid any attention to financial advertisements will almost certainly have heard about ISA’s. Those individuals who find saving easy and always likes to invest in the future are likely fully aware of this financial product. Many people though, will have heard about ISAs but will have no real idea about what this actually is all about. They may have a vague idea that it is something to do with investing or saving money, but have no real idea about the benefits of this type of product.

So what are ISA’s and are they Good Investments

ISAs are Individual Savings Accounts. In the words of moneysavingexperts.com they are not really to be considered savings or investment products in themselves but are rather a ‘wrapper’ for a certain kind of investment. The great thing about an ISA is that you can put your savings in one of these and you won’t need to pay any tax on the money you make. A cash ISA also won’t charge you a 20% interest charge as happens with a savings account.

The fact that the money inside ISA’s is tax free is what attracts most people to them. It is important to point out here though that there will be a limit on the amount of money you can invest this way. At present you are allowed to put up to £5,100 into an ISA and still not need to pay any tax on the interest. The amount has recently been increased in order to encourage more people to save.

How Do ISA’s actually Work?

There are different types of ISA and most will require you to leave your savings inside for a certain amount of time. With some of these you will have to pay tax if you withdraw your money before the agreed time is up. This is not through of all ISA’s though and you will find some that allow you to withdraw your money early and still benefit from the tax free incentive.

Are ISA’s a better Choice than a Regular Savings Account?

The fact that the ISA provides tax free interest makes it an attractive proposition for many people. On the other hand the fact that there is a limit to how much you can save means that it won’t suit everyone; at least not fully anyway. A big problem with ISA’s is that it usually means that your money is tied up for a certain amount of time. This means that it is difficult to transfer your money to another bank if they are offering better interest. It is possible to exchange ISA money between banks and not lose out on your tax free interest so long as all the relevant information is passed between banks.

ISA’s do seem to be something worth considering for those individuals hoping to make a bit of profit on their savings without the need to pay tax. They might not be the best choice for everyone though, so it makes sense to investigate your options before deciding to do this.

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Meet the Author

Anthony Carter currently resides in Fife, Scotland with his wife Lisa, and their three wonderful children. As a senior editor for various publications, if he's not reading and writing, you would find him photographing and traveling to some of the most far-flung locations around the world.

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