If you want to beat the tax man, why not invest in an ISA account before April 5?
An ISA, or Individual Savings Account, is a tax-free savings account. The maximum you can put in for the 2016/17 tax year is £15,240.
The benefit of a Cash ISA is the fact you’ll keep all interest earned on money you have saved into the account. However, you can’t roll over any unused allowance into the next tax year. With that in mind, you may want to put as much as you can towards your ISA allowance before April 5.
Over time, if you continue investing the maximum allowance each tax year, then you could build yourself a substantial figure for retirement or any other long-term aspiration. Earning the maximum interest and snowballing the savings pot might be a winning strategy for you.
What’s also good to know is that the ISA allowance is going to increase for the 2017/18 tax year. You’ll be able to put in £20,000.
If it is flexibility you’re after, you’ll be pleased to know that some ISAs offer freedom to take your money out at any point. You can then return the sum within the same tax year, without it impacting your allowance.
Although current interest rates are low, a Cash ISA still offers some value, with the average rate being 1.53% during the 2014/15 tax year. And if you’re really looking to get beyond the 1% interest mark, then why not consider a Stocks & Shares ISA?
A Stocks & Shares ISA is a tax efficient investment which enables you to invest your money into a range of holdings. It means that you’ll own a small part of some big companies, and if they do well, your return of investment is also likely to do well. The average Stocks & Shares ISA gave growth in the region of 7% for 2014/15, although you must keep in mind that with investing, the value of your investment can go down as well as up.
To help you decide between a Cash ISA or Stocks & Shares ISA, consider what it is you are saving for? Is it a short-term aspiration, or a long-term goal?
If you are saving for the short term, the reliability of a Cash ISA is likely to be what you are after. If it is the longer term you have in mind, then a Stocks & Shares ISA might be a better choice. There’s the potential of greater returns, and you can choose a level of risk that suits you.
Whether it is a Cash ISA or a Stocks & Shares ISA, you should act now to ensure that you’re getting the most out of your money before the new tax year starts on April 5. Make your money work for you!
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.