There is never a bad time to start saving. It doesn’t matter whether you’re starting your first job, or you’ve been working for some time and decided now’s the time to think about the future. Whether it’s for a rainy-day fund or your retirement pot, savings are vital to give you a financial buffer – security for the years ahead.
But with so many financial products available to invest in, it can be hard to know where to begin. The principle ‘keep it simple, stupid’, otherwise known as KISS, couldn’t be more applicable to your personal savings.
An Investment Savings Account (ISA) should be your first port of call for a variety of reasons. Firstly, it’s one of the most accessible savings products. Secondly, it’s a very flexible savings product. For instance, if you start out with a cash ISA, you may be able to transfer your ISA to a different provider who can invest it in a stocks and shares ISA to try and outperform cash-based accounts. For example, a cash ISA could be transferred to a MyNestEgg ISA in just a week by using digital systems like Altus and Origo to speed up the process while maintaining the safety of your funds.
Thirdly, it’s also one of the few routes you can take to save and grow your money without paying tax on the gains. That’s because an ISA is known as a ‘tax wrapper’, meaning that any funds invested are shielded from HM Revenue and Customs (HMRC).
To counterbalance that tax-free benefit, the UK government does cap how much you can invest into an ISA every tax year. The ISA allowance is currently set at £20,000. This refreshes at the start of every new tax year. It’s important to note that this threshold can change depending on the whim of the UK government at the time, so keep tabs on government updates like the Budget to stay informed.
There Are Different Types of ISAs Too
The beauty of these savings products is that there’s no one-size-fits-all option. There are several ISAs to suit different savings styles and goals. Here’s a quick rundown of the most popular ISAs in the UK:
Stocks and Shares ISA
If you’re keen to invest in some of the world’s biggest or up-and-coming companies, this ISA allows you to pick and choose which stocks you buy. You can also buy index funds which cover a broad ‘basket’ of stocks across one or multiple sectors or economies.
Lifetime ISA
If you’re keen to get on the property ladder in the UK, this ISA can help, allowing you to save £4,000 a year tax-free. The government also throws in a 25% bonus on contributions (capped at £1,000 per year).
Cash ISA
The simplest ISA product, pop your money into a cash ISA and watch it accrue interest over time. It’s the lowest-risk option, since you’re not investing in companies or entire economies.
Innovative Finance ISA
Finally, this is a more niche ISA product, giving you a chance to offer peer-to-peer lending and alternative investments to try and achieve the biggest returns, albeit at a much greater risk.
It’s important not to view an ISA as a conventional savings account with your bank. This savings product is a powerful tool to help you build financial security without losing money to tax. The sooner you start saving, the more you will benefit from compounding your returns – even the smallest contributions add up over time.
