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Cash versus Stocks and Shares: Your ISA guide

Category: ISA & News

While the Bank of England (BoE) recently delivered an optimistic, if cautious, forecast for the UK economy in 2021, the base rate remains at a historic low.

With inflation on the rise, you might find that your savings are losing value in real terms. Have you considered turning to the tax efficiencies of an Individual Savings Account (ISA)?

There are several types of ISA available, with an overall limit – known as the “ISA Allowance” – on the amount you can contribute during a single tax year. This currently stands at £20,000, spread across all ISAs you hold.

Each ISA type has tax advantages but the right one for you will depend on many factors, including when you want the option to access your money, and what you hope to use the funds for.

Keep reading for your ISA guide.

1. Cash ISA

A Cash ISA works in much the same way as a regular savings account and is available to any UK resident over the age of 16.

Your money is protected under the Financial Services Compensation Scheme (FSCS) and you don’t pay tax on the interest you earn, but savings rates are currently low.

If you have a large amount of savings, though, or you are an additional-rate taxpayer, a Cash ISA might be a great option.

Cash ISAs are also perfect for an emergency fund as your money can usually be accessed quickly and easily.

With savings rates low, you might find that a Regular Saver or a fixed-term Cash ISA, where your money is held for a fixed amount of time, could secure you more competitive rates, helping to prevent your holdings from losing value when measured against inflation.

Speak to us if you are considering a Cash ISA and we can help you secure the best available rate.

2. Stocks and Shares ISA

Like Cash ISAs, Stocks and Shares ISAs are tax-efficient. Any gains you make are free of both Income Tax and Capital Gains Tax (CGT).

As the name suggests, a Stocks and Shares ISA invests in the stock market. This could include individual shares, investment funds, or government and corporate bonds.

Investing gives you the chance of seeing increased returns but places your funds at greater risk. Understanding your attitude to risk is crucial and will allow you to match your investments to your risk profile.

You must also be over the age of 18, and a UK resident, to open a Stocks and Shares ISA.

This might be the right product if you are looking to invest for the long term. An investment goal of retirement, for example, or helping a young child through university in a decade or more, will give your invested fund a chance to grow.

A ten-year investment period also allows time for your fund to recover from any short-term volatility, such as we saw at the outbreak of the coronavirus pandemic in March 2020.

Taking just the right level of risk for you could see your funds outstrip inflation at the end of your investment term.

Get in touch if you are considering investing or would like to discuss your risk profile.

3. Lifetime ISA (LISA)

Introduced in 2017, and available to those aged 18 to 39, a LISA can help you save for a first home or towards retirement.

Your annual investment receives an additional 25% from the government each year, up to the LISA Allowance of £4,000. This means you could receive up to £1,000 from the government each year.

The bonus is payable until age 50, meaning that if you used your full allowance from age 18, you would receive £33,000 in government bonuses.

The money, though, must be used toward your first home. Taking your money out before the age of 60 and using it for any other purpose will result in a 25% penalty.

If you are looking to get onto the housing ladder, a LISA could be a great choice.

As with other ISAs, the £4,000 LISA Allowance forms part of your overall ISA Allowance. Paying the full amount into your LISA would leave you with £16,000 to spread between the other ISAs you hold.

Get in touch

Hartsfield Planning can put together an investment portfolio that aligns with your risk profile, capacity for loss, and future goals.

Whether you need help managing an existing portfolio or are looking to invest for the first time, please get in touch and find out how our team of expert financial planners can help you.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Get in touch

If you’d like to speak to us or book an initial meeting, you can contact us directly or, alternatively, drop us a message here.

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