ISA stands for Individual Savings Account and is a type of savings account that allows you to save money tax-free. But ‘what does that mean?’ you may ask, well tax-free in this case means that you will not have to pay tax on the interest you earn on those savings.
So there are a few different types of ISA, but first, here are some key things you need to know:
This is the ‘basic’ ISA made for saving up to £20,000 without paying tax on the interest. There are different types, just like other savings accounts, like Fixed Rate, Easy Access or Notice Accounts so make sure to really research which one is best for your specific saving goals.
With this type of account, your money is at risk as you are investing in funds, bonds and shares in individual companies, the value of which can go up or down. This is more an account for the long-term - put this money aside, let it do the work and come back to it later in life. There will be some fees to pay so check the terms of each account carefully.
This is for first time buyers aged 18 to 39. You can save up to £4,000 a year and the Government will top this up by 25% (£1,000 if you put in the full amount). If you don’t end up using it for a house, you can use it for retirement instead. Again, you will have the choice between Cash (potentially the better option for buying a home) or Stocks and Shares (the long-term option, so may be better for retirement).
Investing in this ISA allows the provider to lend out your money to borrowers or businesses. You get interest from lending your money out, but your money is at risk and you may lose it if it cannot be paid back.
Be sure to do your research then start making the most out of your money!