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What are the different types of ISA available and how do they differ?

ISAs (Individual Savings Accounts) are a very popular and efficient way of saving because returns are paid tax-free. There are six main types – cash, stocks and shares, innovative finance, junior, help-to-buy, lifetime. The maximum amount you can save each year is £20,000.

Cash ISAs are available through banks and building societies and work much like any other savings account with similar options available such as instant access, regular saving deals, and fixed rate choices. They are ideal for short-term savings goals such as holidays and money you wish to keep accessible for flexibility.

Stocks and shares ISAs allow investment in shares in individual companies, investment funds and bonds. Whilst they offer the potential for higher returns, they are, however, more risky than cash ISAs because the value rises and falls with the stock market and you are not guaranteed to get back your full investment. They are better suited to long-term financial goals such as saving for your childrens’ education or additional retirement funds.

Innovative finance ISAs are a new form of ISA, allowing savers to use peer-to-peer (P2P) or crowdfunding lending platforms to receive tax-free interest on investments. Potential rates of interest are higher than with cash ISAs because of the higher risks associated with lending to generally new business.

Junior ISAs allow parents to save on behalf of children under 18. The limit in 2018/19 is £4260 per child. This amount is in addition to the parents’ own allowance. They can be cash or stocks and shares, and interest is paid tax-free.

Help-to-Buy ISAs are designed to help people save a deposit for their first home. You can put in up to £3,400 in the first year and £2,400 in following years.

Lifetime ISAs can be opened by savers between 18 and 40 (though you can continue contributing up to the age of 50). They have an annual limit of £4,000 and the Government will add a 25% bonus, up to £1,000, each year.

If you would like to know more about ISAs or to discuss which one is right for you, contact us on 01945 581937.

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