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ISAs Explained

The world of ISAs can be confusing to the uninitiated – but in fact they’re actually fairly straightforward, and a great way to save for the long term. We thought it would be worth giving you a very quick overview of the different kinds of ISAs there are available out there.

A tax-free return

An ISA – short for Individual Savings Account – allows you to save up to a maximum of £20,000 in a tax year – and the big advantage is that you don’t pay tax on the return you get from your investment. There are four principle different kinds of ISA to choose from, each with their own advantages.

The first are Cash ISAs, which are essentially a savings account where you don’t pay tax on any interest you earn – these come typically in the form of a bank or building society account, as well as some National Savings and Investments products. Even You might get a slightly higher rates of interest are available too, if you’re happy to restrict access to your money for a while.

A stocks and shares ISA meanwhile puts your money into anything from shares in companies, to unit trusts, investment funds, corporate bonds and government bonds. They’re a great way for savers to enjoy some of the potentially higher returns – and of course risks – that the stock market offers over the simple tax-free saving account offered by a Cash ISA. The stocks and shares ISA we offer invests via our Ethical With-profits Fund, which includes a mix of stocks and shares, fixed interest bonds, commercial property and cash deposits. You’ll earn through the yearly bonuses we give you and there’s a good chance you’llyou can even get a final bonus when you cash the ISA in or you make a withdrawal.

Long-term savings

A lifetime ISA is a great way to save for a house, or extra funds for when you retire – you can invest either cash or stocks and shares, and you’ll need to be between 18 and 40 to open one. Lifetime ISAs allow you to invest up to £4,000 a year until you’re fifty, and the government will also give you a 25% bonus, up to a maximum of £1,000 each year. You can only use the money to buy your first home or for your retirement, otherwise the government takes back the bonus they have you.

Junior ISAs meanwhile are ideal if you want to give a child a tax free payment when they turn 18. We’re really proud of our With-profits Junior ISA: it’s a stocks and shares ISA that invests only in the Healthy Investment Ethical With-profits Fund. Again, it offers regular yearly bonuses and most importantly, the peace of mind that comes with knowing that none of their money is invested directly in companies in the alcohol, tobacco and arms industries or with gambling and pornography providers.

Finally, Innovative finance Finance ISAs allow you to invest in a growing area of finance – peer-to-peer loans. This kind of ISA was introduced in April 2016, and allows individuals to use some (or all) of their annual ISA allowance to lend funds through the Peer-to-Peer lending market. An added bonus is that you’ll still receive tax-free interest and capital gains, but we believe that this type of ISA is only for experienced investors who are prepared to take a higher level of risk.

The maximum you can invest each tax year is currently £20,000 and unusually this year the government are not increasing the ISA limit for the new tax year. You can carry over the limit from one tax year to the next, so if you don’t use the limit this year you will lose it.

Make sure children don’t miss out.

Junior ISAs meanwhile are ideal if you want to give a child a tax free payment when they turn 18. We’re really proud of our With-profits Junior ISA: it’s a stocks and shares ISA that invests only in the Healthy Investment Ethical With-profits Fund. Again, it offers regular yearly bonuses and most importantly, the peace of mind that comes with knowing that none of their money is invested directly in companies in the alcohol, tobacco and arms industries or with gambling and pornography providers.

Every child has their own Junior ISA limit and for the new tax year in April 2018 the government are increasing the limit from £4,128 to £4,260.

There are a huge range of options out there, so if you’d like to find out more about any of the ISAs we offer, then just give us a call on 0161 762 5790.