Cash, stocks and shares Isas
Isas are the original tax-efficient vehicle. They started out offering a stocks and shares, cash and life insurance Isa, where all the gains or interest are received tax-free.
Now we have cash, stocks and shares, innovative finance, and lifetime.
The maximum amount you can put into your Isa in the 2018-19 tax year is £20,000, which can be put in its entirety into one type of Isa or spread across different types of Isas.
Historically, the initial route into saving was through a cash Isa, when banks and building societies were paying a decent rate of return. But with interest rates still at historic lows, cash Isas are barely paying 1 per cent, although those topping the best buy tables are offering 2.5 per cent or 3 per cent.
Stocks and shares Isas are more complicated and are offered by a range of investment houses as well as direct-to-consumer platforms, and are the entry point for many getting involved in the stock market.
Patrick Connolly, chartered financial planner at Chase de Vere, says that clients actively choosing to get into stocks and shares for the first time (they may already be exposed through their pensions) have to think about what they want to invest for, how long they are investing and how much risk they want to take.
“People are likely to get a better return by investing in a stocks and shares Isa rather than cash. It’s better to have some money sitting in useable cash for a short-term emergency, but longer-term, cash isn’t the best option.
“For stocks and shares we would hope they have a reasonably long timeframe, certainly more than five years. We would hope they would be willing to take a degree of risk.
“Most people when they are starting out will be saving regular premiums, for example about £250 a month.
“If people don’t have much experience of investing it doesn’t make sense to invest in something that is too high risk.”
He recommends for the novice investor to start off with passive investments or trackers: “UK tracker or global equity tracker is a really good choice for people starting out on that basis.”
Lifetime Isa
The Lisa is a form of savings vehicle, either for buying a home or building up a pension. It has an opening age limit of 40, and the maximum you can put in it is £4,000 a year, as part of the annual Isa allowance.
You can keep adding money to it until the age of 50, after which point the account stays open until you want to access it.
