Are you suffering from ‘Isa confusion’? I'll explain what that is in a second.
Over the years in this esteemed column, we have worn out various Chancellors of the Exchequer (I think of George Osborne and Philip Hammond), and now we have a relatively new resident of Number 11 Downing Street, Sajid Javid.
Chancellors come and chancellors go, but this esteemed column in the Irish News on a Monday remains.
Our new Chancellor has been called upon by the chief executive of one of the leading investment companies, Andrew Bell of AJ Bell, to sort something out for him. He has asked Mr Javid to “radically simplify the rules around individual savings accounts” (Isas), because they have become “unnecessarily complicated” and are putting people off saving.
Well, if you are one of those people in a state of ‘Isa confusion’, you are reading the right article, because this week we are going to explain the main types of Isa for you.
This year, you can invest up to £20,000 in your Isa or Isas – you can spread your savings over more than one type.
Isas have been around now for 20 years, and the cash Isa has consistently been the most popular, because you can save tax-efficiently but still have your money close at hand. They are also a very safe way to save, because they are protected by the Financial Services Compensation Scheme.
Mind you, interest rates on cash Isas aren’t great at the moment. Your best deal, if you have a minimum of £100 to put in, is Yorkshire Building Society’s Isa offering 1.4 per cent.
You can get a better rate by locking your money away in a fixed term cash Isa, and the rule is that the more you have, and the longer you lock it in, the better your rate. Paragon’s 1-year fixed rate if you invest £500 is 1.55 per cent.
The unimpressive rates on offer from cash Isas lately have meant that stocks and shares Isas have increased in popularity – stock market investments tend to give a much better return than cash, if you can stay in for the longer term. More than 10 years is usually recommended. Stock market investments do fluctuate, so a longer term view is needed, to give your money time to grow.
Then there’s the ‘Innovative Finance Isa’ which is for those who are comfortable with a more risky investment in projects that, in return for the high risk, have the potential for a high return.
Then there’s the lifetime Isa, which may be the one that prompted Mr Bell’s request to our new Chancellor. The lifetime Isa is a particularly complex one, in fact the former pensions minister Ros Altmann said lately that “the lifetime Isa is unsafe to sell without advice.”
Lifetime Isas aim to replace Help to Buy Isas, and if you’re aged 18 to 39 you can save up to £4,000 a year, on which you receive a 25 per cent government bonus. Money in lifetime Isas can only be used on a first property purchase, or must be held until age 60 to be withdrawn, tax-free, for retirement.
And lastly, we get to the children. If you want to save for your child, you could open a junior Isa, where you can now save up to £4,368 a year. Anyone can put money into the ‘Jisa’ for your child, so popping in a few pounds can be a great alternative to conventional presents at Christmas and birthdays, and it can build up until your child can access their cash when they turn 18.
Clear as mud? Let’s hope we have cleared up some of your ‘Isa confusion’!
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or via www.mkennedyfinancial.com
