There are many individuals from all walks of life who have been looking for a way to have their money work for them as opposed to the other way around. While options such as investing are certainly popular, it can be argued that the most common method is to place one's funds into what is known as an ISA. Let's take a look at how this type of account functions, the associated benefits and a handful of the considerations to address before committing to one provider over another.
What is an ISA Account?
The acronym ISA stands for Individual Savings Account. So, the first question that you likely have involves how this account is different than a typical savings account. The one key takeaway point here is that you will not be obliged (under most circumstances) to pay any income tax on in the interest earned through an ISA. However, we should not that the maximum allowance during any given financial hear is 20,000 pounds. Once you reach this threshold, you will be required to pay normal taxes.
The Types of ISAs
The most common form of an ISA is a standard savings account. You will place funds into this account and this money will earn interest over time. While a great way to secure your finances, there are some who prefer what is known as a stocks and shares ISA. In this case, your funds will be invested into an array of assets (blue-chip stocks, treasuries and currencies to name a few). The potential advantage with this choice is that assuming the assets perform well, you will earn an additional income in the form of profit. A final option is a junior ISA. The allowance is lower when compared to a normal ISA, but it could be a great way to place funds aside for a child or someone who is headed off to university in the coming years.
Are There Any Drawbacks?
This is an important question to address. We should first mention that interest rates will vary between providers. Be sure to check if these rates are worth the time that the money will be invested. Having said this, it is much more difficult to withdraw money from an ISA when compared to a standard savings account. Should you be forced to remove funds, this action will incur a rather stiff penalty. To put this another way, the typical ISA is much less liquid than a bank account.
Questions to Ask
Besides the interest rate issue mentioned above, you should also enquire about any early withdrawal fees as well as what type of customer support you can expect to enjoy. Finally, search online for the provider in question and read any reviews from previous clients. This is always an excellent way to appreciate the pros and cons of such plans.
