37% of households are taking advantage of an Individual Savings Account (March 2010). If you are saving by any other means you are effectively losing out on tax free interest on your savings and investments. Each year you can place your savings or investments into an ISA subject to certain limits. If however you decide not to, you lose the allowance for that year. You could be missing out on £1200 worth of interest a year. The tax year starts afresh on April 6th, which is when your new allowance begins.
With any standard savings account taxpayers have to pay a percentage of any earned interest to the Government between 0 - 40%. The ISA allows you to save without losing money in tax to the government.
ISA Allowances
The limits are as follows:
2010 / 2011
Cash ISA Allowance £5,100
Stocks & Shares ISA Allowance £10,200
Overall ISA Allowance £10,200
2011 / 2012
Cash ISA Allowance £5,340
Stocks & Shares ISA Allowance £10,680
Overall ISA Allowance £10,680
A stocks and share ISA differs from a Cash ISA as your money is invested into different areas such as company shares, government and corporate bonds and other financial instruments. This can affect your short term access to your money however can allow you to generate much greater gains in growth than is typically available with cash deposits. This potential for greater gains is also matched with a potential that you can lose an element of your money in the short term, as ultimately, your money is held within different areas. The level of risk you decide to take is entirely up to you and you should consider your objective, need to access the money, timescale of the investment, as well as your own investment knowledge.
It is always advisable to speak to an Independent Financial Adviser, who can help you choose the most appropriate ISA for your needs.
If you want to discuss with an Independent Financial Advisor any queries you might have, or if you would like some more information on how to put your ISA to good use call us on 0800 389 2193.