13:21 06 March 2013
Some call it just a tax-free savings account. But when used in the right manner, an ISA (individual savings account) can be much more than that. By taking advantage of yearly tax free savings allowances, you can build a nice retirement nest egg.
Each year, all UK residents are allowed to put away a certain amount of cash in a tax-free ISA. For residents 16 years and older, the allowance for 2012 to 2013 is £11,280.
The entire amount can be invested in stocks and shares, or it can be split with £5,640 in a cash investment and the remainder invested in stocks and shares. For residents under the age of 16, there is a Junior ISA that has an allowance of £3,000.
The advantage of an ISA over a regular savings account is the fact that ISA are not taxed as long as the money stays in the account. This means that a person who saves the totally allowed amount yearly could save over £100,000 in ten years plus whatever interest is earned.
You must note, however, that any portion invested in stocks and shares is subject to decrease or increase based on the market performance of that stock.
There are many different types of ISAs to choose from, so it’s important to find one that’s going to meet your needs. You can withdraw cash from your ISA any time you want and the interest will not be taxed. If you choose to place the largest portion of your ISA in stocks and shares, it is best to plan on not touching the money for at least five years, thereby giving the stock time to perform and hopefully produce positive gains.
ISAs are a great savings tool for residents of the UK who take advantage of it. Do your homework and know all your options. Find the ISA that will work best for you.
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