ISA: An easy explanation???

Question

I know nothing about ISA's and was looking for an easy explanation on them.

I am hoping to save between £200 - £400 per month, I already have £2,000 and I just think there is more I can do then whack it in my bank account/saver account.

Is the current climate suitable for saving?

Many thanks

Answer 1

Good answer above from Raysor.

Simply being tax free does not necessarily make it a good investment for you.

The benefit of the tax free investment is relative to your own tax obligation. If you are a non tax payer then there is no advantage. If you are a basic rate tax payer then you need to consider that some available high interest bank accounts will currently return better interest after tax than the return from most cash ISA's on offer. These are also likely to be more flexible and won't be restricted by the rules and limits of the ISA. Beware that most high rate ISA's are high introduction rates and these will typically reduce after the first year. You can move the funds into a different ISA but there are a limited amount of delas which will allow you to do so. The third scenario, is if you are a 40% tax payer. In this case, it is highly beneficial to use your tax free savings allowance and it would be almost impossible to find a better investment.

Take a look at the Landsbanki ICESAVE ISA. Not the very best rate but straight no nonsense high interest rate cash ISA and consider whether it is the best investment for you.

Answer 2

Its a saving account you put money in and the goverment doesnt take any Tax.

You can invest up to £3000 in an ISA but you can only open one a year.

You pay no tax on any of the income you receive. This includes dividends, interest and bonuses.

You pay no tax on capital gains arising on your ISA investments.

ISAs do not have to be mentioned on your self-assessment tax return

Theyre basically a goverment insentive to get people saving, I think theyre a really good idea.

Answer 3

It's actually £3,600 per year now.

Don't forget this is compound interest, so after a couple of years you are getting tax free interest on your interest.   This really beginsto make a difference.   If you had had an ISA from the beginning and put in the maximum each year, ;you would be now have about £30,000.   You would have the interest on that say £2,000 plus £3,600, which means that this year you would be saving £5,600 (or thereabouts) tax free.

Answer 4

ISA means Individual Savings Account and is a Government legislated tax-free wrapper for various qualifying investments. Like anything there is a cost to administer any type of ISA. (reporting to the tax man for one) Somehow the ISA provider has to get this money back. I will leave you to figure it out.So you could put your money ina bank deposit account. On the interest you would pay tax . Alternatively you could put your money in a bank deposit account and get them to wrap it in an ISA. Then the tax on the interest would not be payable, in fact, you would not even have to declare it. Can you see why everyone doesn't do it? Yes, you may be a non tax-payer already, so there would be no advantage. You may also be aware that there are share ISAs. They are not special shares. You open an ISA account with a stockbroker and then buy shares exactly as you would in an a non-ISA account but the dividends are tax free and also the capital gains are tax free. There is a saying something like "don't let the tail(tax saving) wag the dog (investment)". In other words make sure the investment is right for you then look at the possible tax saving, not the other way around. Hope this helps. If not questions to http://www.shareworld.co.uk

Answer 5

There is one pitfall to be wary of, and it has caught out a few people I know.

Your limit of investment for the present tax year is £3,600

Any payments over this figure will be returned to you.

Be aware, If you invest to the limit NO MORE MONEY can be added to it.

This means that if you do invest £3,600 in this tax year and you take out £20.00 you CANNOT put it back in again in this tax year.

Your balance for the remainder of the current tax year will be £3,580

Also , shop around for the best interest deals.

Answer 6

With ISA its tax free so you can put in £4,000 a year I think . We  have  two &  told  ISA  is   safe.