The Biz Whizz

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General Investing | 26th January 2018

The pros and cons of the different ISAs

The pros and cons of an ISA will depend on which ISA you choose, who you open it with, and your saving needs. To make it simpler, let’s first take a look at the pros and cons of the different ISAs.

 

Cash ISAs

This is the most popular and most straightforward type of ISA on the market, and it is an excellent tax-free way to save money. All your money, up to £85,000, is covered by the Financial Services Compensation Scheme (FSCS). It provides you with financial protection should your ISA provider go bust. The average interest rate for a cash ISA is around 1% which at the low end of the scale when it comes to ISAs. But, a compromise for the low-interest rate comes with less risk to your money.

 

Stocks and Shares ISAs

These ISAs typically provide some of the higher interest rates, around 6 – 7% annual return. But, they can come with fees when you need to manage your money. Investing in stocks and shares can be a great way to save over the years. You can then sell them to earn money to buy income-producing assets when the time is right. But, be aware that investments you make can also fall in value. They require constant monitoring to see when some shares may need to be sold or purchased.

 

Junior ISAs

This is an excellent way for under 18s to build up cash savings. The child cannot withdraw any money until they reach the age of 18. But, they do gain control over the ISA management at 16. This is a great way for parents to start investing in their child’s financial future. However, the annual tax-free contribution limit for Junior ISAs is lower than other ISAs. Currently, it stands at £4128, due to rise to £4260 in the new tax year.

 

Help to buy ISAs

At a time when so many people are struggling to get onto the property ladder, help to buy ISAs are particularly valuable. They help first-time buyers purchase their first home by providing a 25% government boost to savings. For every £200 saved, you receive a bonus of £50. But, savings can be slow to accumulate. It might take several years to be in a position to buy your first property and the money saved can only be used to go towards your mortgage deposit.

 

Lifetime ISAs

These also give a government bonus of 25% of the money you put in, up to a maximum of £1000 per year. This money can then be used for your first home or your retirement income. But, a Lifetime ISA has a 25% charge of the amount you take out if you decide to withdraw for any other reason before you turn 60.

 

Innovative Finance ISAs

Innovative Finance ISAs allow you to lend to private borrowers and the returns you make can be as high as 8 – 9%. A great ISA for those who want to be aware of their return, as long as you’re aware that this type of peer-to-peer lending is not covered by the FSCS meaning your money is at higher risk. Usually the cost of bigger financial rewards right?

 

If you’re looking to open an ISA today but can’t decide which is best for you, why not take the first steps and compare using our tracker? We’ll compare top options to make your decision as simple as possible.

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