15:00 16 June 2022
I have around £75,000 in my bank account, which I have built up over the past few years. I know there’s no point in sitting there, but I’m completely clueless about investing. My bank keeps sending me messages about opening an ISA. Can you explain how they work, please?
Phil Beck of Blacksmith and pinch respond :
ISAs – Individual Savings Accounts – are simply savings or investment packages that get special tax treatment. Earnings on anything placed in an ISA are always tax-free, as are withdrawals.
There are two main types of ISAs: cash ISAs and stock and equity ISAs. You can invest up to £20,000 per tax year in ISAs using either type.
Cash ISAs take the form of savings accounts with banks, building societies, or other financial institutions where your money is deposited and earns interest. You pay no tax on the interest. The interest rate will depend on the terms of the ISA: if you lock up your money for a fixed term of, say, two or five years, then you can get a better rate. However, interest rates remain relatively low, so your savings are likely to lose value over time in real terms, when inflation is taken into account.
A Stocks & Shares ISA is an account that allows you to invest in a wide range of investments such as funds, individual stocks and bonds, with the advantage of not having to pay tax on your earnings. ‘investment. The key thing to remember about Stocks & Shares ISAs is that gains are not guaranteed and you could potentially lose money on your investments, but there is also the potential for inflation beating growth.
There are other types of ISAs, which are suitable only in certain circumstances. These include the Lifetime ISA which is designed for those saving either for retirement or for their first home.
ISAs are not the only possible way to invest your excess cash. You could, for example, use it to increase your retirement savings, if that suits your situation.
Now seems like the perfect time for you to put a financial plan in place to make the most of the resources you have and get you on track to reach your financial goals at different stages of your life. I recommend that you meet with an independent financial advisor to come up with a plan.
The opinions expressed in this article do not constitute advice. The value of an investment and the income from it can go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than your initial investment.
For more information, please visit www.smith-pinching.co.uk