10th January 2023
Your ISA Questions Answered 1-3
Q:WHAT IS AN INDIVIDUAL SAVINGS ACCOUNT (ISA)?
A An ISA is a tax-efficient wrapper. A Cash ISA and a Stocks & Shares ISA are two types of ISAs. A Cash ISA is similar to a regular deposit account, except that the interest you earn is tax-free. Stock and Shares ISAs allow you to invest in stocks, bonds, or commercial real estate without paying personal tax on your proceeds.
Q: CAN I HAVE MULTIPLE ISA?
A: This tax year, you have a total allowance of £20,000. This means that you cannot invest more than £20,000 in all of your ISAs this tax year (Cash ISA, Stocks & Shares ISA, Lifetime ISAs, Innovative Finance ISA, or any combination). However, keep in mind that you can distribute your tax-free allowance among as many ISAs and ISA types as you like. For example, you could put £10,000 in a Stocks & Shares ISA and the rest in a Cash ISA. This is a good option for those who want to use their investment for different purposes and over different time periods.
Q: WHEN WILL I BE ABLE TO ACCESS MY SAVINGS IN AN ISA?
A: Some ISAs may tie your funds for a set period of time. Others, on the other hand, are flexible. If you want flexibility, variable rate Cash ISAs usually don’t have a minimum commitment. This means that you can keep your money in one of these ISAs for as long or as little as you want. This type of ISA also allows you to withdraw money from it and reinvest it without affecting its tax-efficient status.
‘An ISA is a tax-efficient way to invest because your funds are shielded from Income Tax, Dividend Tax, and Capital Gains Tax.’
Fixed-rate Cash ISAs, on the other hand, typically require you to tie up your money for a set period of time. If you decide to shorten the term, you will usually have to pay a penalty. However, ISAs that tie your money up for a longer period of time tend to have higher interest rates. Stocks and Shares ISAs typically do not have a minimum commitment, which means you can withdraw your funds at any time.
As with all investing, it is recommended that you invest your money for at least five years or more. Staying invested for a longer period of time allows your investment to grow and better weather market volatility. Can you really afford to see the purchasing power of your hard-earned savings stagnate in a bank account when the cost of living in the UK is rising at its fastest rate in 41 years?
Visit us again tomorrow as we explore alternative sources of income, or alternatively, contact Woodward Markwell for further information and see how we can help you weather the current economic climate.