Everything You Need to Know About Individual Savings Account: A Complete ISA Guide
An Individual Savings Account, in simple terms, is a tax-free way to invest or save your money. For beginners who are thinking of either saving or investing, ISA provides a level ground with favorable terms and conditions to start their journey. Unlike other savings account where you are required to pay income tax on earned interest, ISA does not impose such taxes. ISAs have the edge over other savings accounts; they provide savers with a tax-efficient means of managing their finances.
Types of ISA:
- Stocks and Shares.
- Cash ISAs.
- Innovative Finance ISAs.
In spite of all the positive things that ISAs offer, they are not without a hitch. Some challenges of having one are difficulties when making deposits, withdrawals and even transfers. Having the required information regarding ISA, how they operate and the cons will help you make an informed decision. Do not believe everything you hear or see. Some advertisements from banks popularizing ISAs can be misleading. The ads focus on the good and leave out the setbacks. This article will explain in detail crucial facts and main things you need to take into account.
You can get ISA from the following providers:
- Credit unions.
- Commercial banks.
- Building societies.
- Credit unions.
- Other financial institutions.
In a bid to make ISA more accessible and appropriate to the ordinary citizens, the government through the 2014 budget made some significant changes. The government announced the introduction of new ISAs (NISAs) on 1st July 2014. It is different from the standard ISA. It offers people with ISA a substantial subscription limit. To be precise, it is now possible to save an amount totaling £15,240 valid from the tax year 2016/2017. The ISA allowance was £4,080 for Junior ISAs. Each tax year starts on the 6th of April each year and ends on 4th April.
These changes affected the deposits made in a few areas most notably: Cash ISAs, Innovative Finance, Stocks and Shares or a blend of these three. The age limit if you are thinking of splitting your annual allowance between Cash, Shares and Stocks or Innovative Finance is 18 years. With the limitations, it implies that you can only not pay in more than one Stocks, one Cash ISA and the others every tax year. If you wish to channel all your allowances at once into a Cash ISA, it is now possible to do so. The rules governing ISA are bound by the HMRC and can change when the need arises. One rule you need to be aware of is that you cannot under any circumstance hold an ISA with or on behalf of another person.
One benefit ISA is that the interest earned is not charged any tax. Other conventional savings account lack this feature. Tax-free benefits translate to bigger returns on investment (ROI). Your present personal circumstances have a significant role to play on your tax benefits. In simple terms, you will get to keep all the money accrued from Cash ISA.
Savers still enjoy the tax-free benefit when moving their money from an individual provider to another on condition that they follow the due procedure regarding their provider’s committed ISA transfer. You first have to fill out an ISA transfer form to make this possible. The same goes for savers who want to perform a transfer from one Junior ISA to the next. Be careful not to surpass your yearly allowance. For Cash ISAs, it takes a maximum of 15 working days to do a transfer. Stocks and Shares and Innovative Finance ISAs transfers take a maximum of 30 business days.
The cash on transfer could be either all the current year subscriptions or a portion of the previous years’ subscriptions. If you are planning to move to another provider, do not make a transfer blindly, unless you want to lose the benefits. The first thing you are supposed to do is to check whether the other providers accept transfers. The next step is to check out for possible restrictions. The other providers may have in place restrictions that will not do your savings any justice. They include transfer charges and other hidden charges. You are in charge of your money, and it is your responsibility to ensure that your money is used or kept well.
You probably do not know this, but it is possible to transfer money from an Innovative Finance ISA into a Cash ISA and the other way round.
Withdrawals in ISAs have many regulations that you should take into account. Note that if you decide to withdraw the money Cash ISA with a flexible instant access, the result will be the money losing its tax-free privilege. Savers can make unlimited deposits and withdrawals from their accounts till all the deposits they have made amount the maximum amount.
Owning a Cash ISA with Flexible instant access allows you as a saver to withdraw money and replace it as you wish to provide money is credited to the same account before it reaches midnight on 5th April of that tax year the saver withdrew the money. You have the luxury of removing then replacing money from either the current year subscription or the previous years’ without the cash counting towards your annual subscription limit.
Having a Cash ISA with a Fixed Rate guarantees the Saver interest rate for a year. The term fixed here implies that you cannot withdraw any money from the account until the fixed term elapses. An exception is if you decide to close your account. If this is the case, you will be allowed to withdraw all the money in your account.
Junior ISA enables your children to kick start adult life and realize their ambitions and dreams when time comes. Savers with Junior ISAs face restrictions to withdrawals till young individuals who are the “real” account holders reach 18 years of age. 18 years is the legal age, and on turning 18, they are adults and have full rights to the accounts. You may, however, perform a transfer of the cash from one Junior ISA to another.
ISAs are a tax-efficient method to make savings for yourself and your family. You can apply online or visit your nearest local provider for assistance on the same. With the recent technological developments, it is possible to access your ISA online from the comfort of your house. If you a UK resident aged 16 years and above, take this excellent opportunity and open a Cash ISA. For more information on tax rules surrounding ISA, contact the ISA helpline.