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Since 1999, Brits have been able to save using Individual Savings Accounts (ISAs). These special accounts were created by the government to encourage people to save more. At the time, they were one of the few ways that ordinary citizens could save without having to pay tax on the interest that they earned, so they were an almost instant success.
But, these special savings accounts are still an excellent way to save. If you want to learn more about the different types of ISA and how they work, all you need to do is to read on.
Cash ISAs
If you are a UK resident who is aged 16 or over, you can open a cash ISA. With these types of accounts, you can usually access your money at any time. Provided you chose one that comes with FSCS protection, your cash is as safe as it can possibly be, within the limits of that scheme.
Investment ISAs
Stocks and shares ISAs are classed as investment accounts. This is because the cash you deposit is invested in stocks, shares, bonds, property, and commodities. In some cases, all of these are a part of the portfolio, but you may also find that only some of these investment vehicles are used for the account you choose.
With this type of ISA, there is some risk involved. All of the above investment vehicles can go down as well as up in value. Plus, there are fees to be paid.
However, should you make a profit; you get to keep all of the money. There is no capital gains tax or tax to pay on the interest.
Innovative Finance ISAs
With this type of ISA, your funds are used to provide loans to pre-approved businesses and individuals. It is a kind of peer-to-peer lending platform. This type of ISA also comes with some risk. You have to bear in mind that a borrower could fail to pay you back. There is also no FSCS protection with this type of ISA.
Lifetime ISAs
If you want to save for your first home or for your retirement, a Lifetime ISA may be right for you. To be able to open one you need to be a UK resident who is aged between 18 and 40. You can make contributions to this type of ISA until you are 50.
Once you reach the age of 60, you can take the funds out. You can also do so earlier if you are buying your first home or have been diagnosed as terminally ill with less than 12 months to live. But, there are a lot more rules than this. So, take your time to fully understand the in and outs of this type of ISA before opening one.
Do a bit more research before choosing your ISA
The above is just an overview of the different types of ISAs that are available. Before you make your final decision and open one, do a bit more research. You want to be 100% sure that you have chosen wisely and will want to find out how to understand the small print. If you are still uncertain, make sure that you speak to an independent financial advisor.