Friday, September 16, 2011

The Advantages of ISA's

An ISA is a tax free way of saving. Adults in the UK can invest up to £10,680 a year in an ISA and they will not be required to pay tax on any gains. This article looks at the advantages of ISA's.

Non-Taxable Income

The main, and most obvious, advantage of an ISA is that you do not have to pay tax on the interest gained. For those in the regular tax bracket this means saving the 20% tax they would otherwise have to pay on the interest.

No Capital Gains Tax

As well as being exempt from income tax, an ISA is also exempt from capital gains tax. This would normally be paid at 28%.

You Have Easy Access to Your Money

Unlike some investments you have access to your money if you need it. If you realise you have invested money that you now need, it is simple to withdraw this from the investment.

Can Split Between Cash and Stocks and Shares ISA's

ISA investments can be split between the two types of ISA; cash ISA's and Stocks and Shares ISA's. The total investment that can be made per year in £10,680. A maximum of £5,340 can go towards a Cash ISA, so anything above this must go towards a Stocks and Shares ISA. Should investors wish, anything up to £10,680 can go towards a Stocks and Shares ISA.

Can Invest Long Term

Money invested into an ISA can be invested for as long as the investor wishes. Although the yearly limit is £10,680, this can be invested every year with no overall limit.

Can Invest from the Age of 18

Stocks and Shares ISA's can be opened from the time someone turns 18. It is even younger for Cash ISA's, which can be invested in from someone's sixteenth birthday with the £5,340 a year limit.

More Beneficial for Long Term Investments

An ISA is most beneficial where invested in over a long-term period. One way it can be used is as an extension to a pension. The longer term an investment is for, the more interest that can be gained and the more there is in the investment in total. If someone is able to invest the full £10,680 a year, that is £213,600 if they do it every year over a twenty year period. Once interest is put on top of that it is a very healthy amount.

There are also fewer risks if investing over a long period. There are ups and down in the financial markets - especially in the current economy - but over a long-term period investment will usually grow. This is even more likely if spread around among various investments products, as is the case with most investment plans and investment trusts.

Benefits to Regular Investors

Some ISA providers will reward customers for making regular investment over a certain amount. For example, they may offer higher interest rates in exchange for a specific minimum investment.

ISA's are a great way to invest with the tax-free benefits particularly good news for investors. Stocks and Shares ISA's are particularly advantageous as they will almost always grow more over a long-term period.

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