Probably, if you are living in the UK and you are gathering information about the possibilities available for saving or investing money, you have maybe read or heard about Individual Savings Accounts. These are just two of the many different kinds of Individual Savings Accounts available in the UK. The Government has provided its citizens with a wide range of choices when it comes to saving or investing money in a tax-efficient way. Although these accounts may seem similar to each other, they differ in some important factors, and it is important to choose the one that deems to be appropriate for your needs.
Let’s have a look at the main differences between Cash ISAs and Stocks and Shares ISA and at the many other accounts available from companies like MoneyFarm.
A Cash ISA is the closest you can get to a regular savings account. The only difference is that in this case, you can start saving your money without paying taxes. In fact, all ISAs currently available to UK citizens are tax-free accounts. This particular type of ISA is intended to help you create a solid saving habit and to let you withdraw your money at any time. Today you can also decide to open more than one Cash ISA and easily transfer funds from one account to another, but you can only open one per year.
When opening an Individual Savings Account, you should comply with an annual allowance, that is to say the limit on the total amount you can deposit into a tax year. This limit is fixed at £20,000 for the tax year 2022-2023. You can also opt for a Junior Cash ISA, which is nothing more than a savings account meant to help you save money for your sons and daughters, who will be given access to their capital as soon as they turn 18. In this case, the annual allowance amounts to £9,000 per year.
Stocks and Shares ISAs
On the other hand, a Stocks and Shares ISA works similarly to a regular investment account. Once again, this version will let you invest in a wide range of financial fields in a tax-efficient way according to your financial portfolio.
Stocks and Shares ISA is usually chosen by investors who have long-term goals and who are willing to face risks related to the market volatility. This type of account, allows the holder to withdraw funds at any time. Nonetheless, if you didn’t opt for a flexible account any withdrawal will affect your annual allowance.
What is a flexible ISA?
From 6 April 2016 onwards, UK investors have gained the chance to withdraw money out of a cash ISA or a Stocks and Shares ISA and put it back in later without affecting their annual allowance. In order to do that, it is necessary to put it back during the same tax year.
How do ISAs work?
ISAs are individual savings accounts meant to let you invest or save your money according to your preferences and profile. Any type of ISA available in the United Kingdom is a tax-free account available for all residents over 18 years old.
As mentioned above, every account is featured by an annual allowance, which amounts to £20,000 per year for all adult ISAs and £9,000 for Junior ISAs. Nowadays you have a wide choice when it comes to choosing the right ISA for your situation. In fact, in addition to Cash and Stocks and Shares ISA, you can open a Lifetime ISA for your life-related purchases or an Innovative Finance ISA to invest capital in peer-to-peer lending.