Saving money at the end of each month to edge closer towards the house, holiday or investment of your dreams will, at first, seem like a slow process. The money that you do save will often be in a balancing act with your current account; leaving you on the precipice of needing to use the money you have saved. That’s why many people choose to place their money into an ISA – a different kind of savings account that comes with a set of rules to maximise the returns offered to you.
When it comes to choosing an ISA (Individual Savings Account) you will need to make a number of considerations to ensure you get the best deal and that your money is growing with every passing day. These considerations are ideal for both types of lifetime ISAs – cash and stocks and shares – and will help you to understand the potential of the money you save.
How can you maximise tax efficiency when placing money into your ISA?
As long as you have money lingering in your ISA, you will be doing so tax free – up to £20,000. This is one of the main perks of owning and using an ISA as your main savings account. If you are able to keep adding to this fund without the threat of taxes lingering over it, you will be saving even more money and making the most of the money you want to stow away every month.
The main consideration to make when you aiming to be tax efficient with an ISA is to understand how the tax year will affect your savings. While most ISAs have their own rules regarding the amount you can deposit and the length of time you must wait before withdrawing to get the returns you set out to get at the beginning, every ISA obeys this tax deadline.
The tax year in the UK runs from 6 April to 5 April and the annual allowance of your ISA is set at £20,000. That means that if you play this smartly, you can have up to £40,000 stowed away at the turn of the tax year completely tax free. For example, if you were to top up your ISA to the magic £20,000 mark a couple of days before 5 April, you only need to wait until the 6 April to add another £20,000 to your savings. By doing this you will be earning the returns on a larger sum of money without being penalised or charged by tax.
How to choose the right ISA for my specific needs?
It is easy to go straight into your bank and start discussing the opening of an ISA that very same day. Banks and building societies want to gather and develop more people signed up to their ISAs, but that doesn’t always mean they can offer you the best deals.
To help you decipher the often-confusing world of ISAs and to make sure that you find the right deal for your situation, it pays to speak with a financial advisor. Get in contact with us today to find out more.
The purpose of this blog is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice.