If you are interested in saving for your future, there is a great option you may have heard of. The Individual Savings Account (ISA) is a tax-free way of saving money for your short or long-term goals. It is a way of saving your money under a tax shelter. The concept of an Individual Savings Account is simple to understand, however, there are a few things you should understand before opening an ISA.
Cash ISA versus Investment ISA
There are two types of ISAs: cash ISAs and investment (stocks and shares) ISAs. In either case, an ISA manager handles your account. You do not have to pay income tax on the interest and the gains are tax-free as well.
The cash ISAs are great for short-term savings accounts. You can place the money into the account at any time or place a lump sum in there up to the annual contribution limit. You can readily pull your money out, and there of course may be penalties for doing so.
An investment ISA allows you to place your stock market investments into a tax-free shelter as well. These are advised to invest in for long-term opportunities. These are a risk and your funds will go up and down. Therefore, if you are depending on the money, it may not be the best option for you.
Check Out Multiple Bank Offers
Banks operate under different terms and conditions when it comes to their ISA’s. Some banks are more lenient than others are. You may find a bank that allows you access to your money immediately while others go through strenuous paperwork. A bank may pay you a fixed rate if you do not touch your ISA for a full year. You may start with a bonus rate for your initial deposit, but the rate may drop over time.
Transferring Fees
A bank can charge you transferring fees. That is a major catch and deal breaker for some people. Remember, you cannot withdraw your own ISA without incurring a fee. It must be transferred over. So find a bank that does not charge a fee. You may find a better interest rate later and it will be too late at the end of your term to transfer and receive the advantages.
When transferring, you want to make sure it is simple to do and done correctly. If you have cash and investment ISAs, they both may not be able to transfer to the same bank. An investment management firm such as Nutmeg makes transferring existing ISAs simple. They offer stocks and shares ISAs. They help you build and manage your portfolio.
Apply Early and Get Your Documentation Ready
The deadline for ISA applications are April 5. Your maximum annual contribution amount for the cash ISA is £11,280 for the 2012-2013 tax year and £11,520 for the 2013-2014 tax years. You will find many people hurrying at the last minute to get them in. Once you have found one you are interested in, hurry and apply. Before that, get your documentation ready such as your identification, address verification, and your National Insurance number.
