As part of the recent budget, the Chancellor revealed that as of July 2014, ISAs will change in an effort to make them easier and more flexible for users. This means it is a better time than ever to invest in one but with many people still unaware of exactly what an ISA is and how it works; there are a number of questions to answer and myths to bust.
What is an ISA?
ISA stands for Individual Savings Account and they provide an alternative way to save money. Unlike a standard savings account however, you don’t pay tax on any interest you earn, making them an arguably more efficient and rewarding investment. They are most commonly offered by existing banks and building societies.
Why are they changing?
Essentially they are changing to make them more appealing and beneficial for consumers. The biggest change with New ISAs is the increase to the overall investment limit that is set by the government, which will now be £15000 per year. You will also be able to split your money in whatever proportion you want between cash ISAs and stocks and shares ISAs, making them much more individual and interactive. If you have an existing ISA, it will automatically be converted to the new format at the same time they become active, meaning there is no need to wait until the July 1st launch date for New ISAs to open one; it will still be valid.
An in-depth look at the features of the New ISA is available on the Scottish Friendly website, including a video breakdown of how and why they are changing.
Can I make withdrawals from an ISA?
A common misconception that puts some people off getting an ISA is that any money invested in one cannot be touched until after a set amount of time. While it is true that these types of ISAs exist – to aid people who are perhaps a little too easily tempted into needless spending – there are what are known as instant-access ISAs which allow you to make withdrawals whenever you want and for the first time, the new ISAs will also allow you to transfer money between stocks and shares ISAs and cash ISAs as you wish.
Is it worth having one?
Not only do New ISAs allow you to avoid paying capital gains tax on profits from stocks and shares or tax on any interest you receive but payments can be very low, meaning people who may otherwise have be unable to invest now can. This is especially important considering that 33% of UK adults (that’s a whopping 16 million people) have no savings set aside for their future whatsoever. The £15000 annual limit also eliminates the risk of investing too much; helping to maintain a healthy balance no matter the budget you have to play with.
Can I get help with an ISA?
Some people want to take advantage of ISAs but lack the knowledge or confidence to pick their own investments when it comes to stocks and shares. There are various middle-men and specialist firms, such as Nutmeg, that build specifically tailored portfolios based on your budget, financial goals and willingness to take risks, meaning you don’t have to go it alone to take advantage of a New ISA.