Individual Savings Accounts (ASAs) are a great way to help you grow your wealth. You can put spare cash aside every month and hopefully watch it grow until you decide you need it. Unlike a pension, your money isn’t locked away and you can usually access it whenever you want. It can be an excellent way to start investing.
There are many different ISAs available, so it’s important to make sure you choose one that suits your needs. This can be done at InvestingReviews. Let’s take a look at what’s on offer.
ISA Options For You
A default choice for millions of savers, but there is growing evidence that the Cash ISA may finally be falling out of favour. Cash ISAs typically offer a fixed interest rate of less than 1%, meaning that in today’s high inflation economy, savers are losing around 4.5% annually.
While some might be tempted to park their spare money in a Cash ISA for an emergency, this shouldn’t be considered a long-term investment.
Stocks and Shares ISA
A stocks and shares ISA is a tax-friendly investment account which allows you to put your money to work in the stock market. ISA holders can invest directly in wizzy tech giants like Apple or Tesla by buying shares in those companies, or alternatively they can choose to invest in funds which track the movement of a market index, like the FTSE 100.
In the long-run, a stocks & shares ISA is expected to make greater returns than a Cash ISA. But there will be more ups and downs along the way. Experienced investors know to stay the course and not allow their heads to be ruled by emotion. Selling your entire portfolio in reaction to some adverse news event — like war in Ukraine — will only seem foolish when the markets rebound later.
The Lifetime ISA was introduced in 2019 to replace the Help to Buy ISA, and might be a good idea for those wanting to get on the property ladder or simply save towards retirement. But strict rules apply. Only people aged 18-39 can open a Lifetime ISA, though you can add money until you’re 50. You can pay up to £4,000 a year into either stocks and shares or cash and benefit from a 25% government top-up (free money). The downside is that, unlike other ISAs, you can’t use the money for whatever purpose you wish. It must be spent on a home or put towards retirement. If you take the money out for reasons other than a house purchase before you’re 60, then a government withdrawal fee of 25% will apply. While it’s a good way to boost your home deposit, it’s also considered inflexible compared with other ISAs.
Innovative Finance ISAs allow you to make loans to businesses, property developers or individuals through peer-to-peer lending. A third party matches you with the borrower but your money isn’t protected if the borrower or peer-to-peer lending platform goes bust. Interest levels are pre-agreed but this is not recommended for a novice investor. One leading investment platform even called on innovative finance ISAs to be closed to newbie investors. Unlike most other ISAs, investors do not enjoy immediate access to their cash and may experience a time-lag.