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ISAs | 23rd October 2018

Debunking Common ISA Myths This Halloween

There are plenty of reasons why you should make good use of your £20,000 ISA allowance. But sometimes, myths around the way ISAs work can stop you from making a great choice. We want you to get the most out of your savings, so we are debunking some of the most common myths. Let’s take a look.

1. An ISA is a bad choice when interest rates are low

There is a slight element of truth to this because investing in a cash ISA at low interest can be a bad idea when you can get personal savings accounts with higher interest rates and a tax-free limit of £1,000. However, this is only part of the story.

With personal savings accounts, your tax-free limit varies according to your tax bracket. Those in higher tax brackets can earn less tax-exempt interest. ISA tax-free limits are up to £20,000. So, even with low-interest rates, if you are planning to open an account with large sums of money, you might get more significant returns from an ISA where you can save more money.

2. An ISA only makes sense if you’re a taxpayer

Investing in a tax-saving scheme when you don’t pay tax in the first place may sound like a waste of time. Why would children need a junior ISA when they certainly won’t have enough money to pay tax?

The main benefit of ISAs is their tax-free allowance. But, even if you’re not a taxpayer, that’s not all that matters now; it’s also about what position you will be in when you need to start taking money out of your ISA. Many ISAs, particularly when interest rates are reasonable, provide higher returns than regular ISAs, depending on which you choose. Stock and shares ISAs and innovative finance, despite higher risk, typically offer much higher returns than other savings accounts.

Don’t ISAs offer perks that other accounts don’t?
Yes! With a help-to-buy or lifetime ISA, the government gives an extra 25% on top of your savings to go towards your first home or your retirement.

3. Stocks and Shares ISAs are only for wealthy people

Stocks and Shares ISAs have more risk to your money than cash ISAs. People assume that to invest in stocks and shares you need to be wealthy enough to be able to risk any loss, which most of us aren’t. There is also the assumption that stocks and shares are expensive to purchase in the first place, so you need money to be able to access the stock market.

Despite the higher risk to your money, stocks and shares are safe providing you monitor your savings and invest wisely. Many ISA providers allow you to transfer small amounts of cash into your ISA every month by direct debit and you can spend when it builds up to a suitable amount. Also, there are ISA providers who charge as little as £1 to invest £200 in shares.

Don’t let myths get in the way of you investing wisely in an ISA as there are plenty of benefits to be felt. These are only a few of them. The internet is full of helpful information, but you can sometimes fall victim to false information surrounding ISAs.

If you need more information on choosing a savings account, visit our knowledge base, or use the Apples For Oranges comparison tool to find the best option for your future.

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