With house prices skyrocketing and the general cost of living increasing every year, it's no small wonder that many of us are saving like there's no tomorrow. Of course sometimes, no matter how hard you try, saving just doesn't cut it. But what else can you do? Let's face it, short of the government giving us all tax free savings we're fighting a losing battle. Hold on though, before we get carried away there is another way - we can invest!
Probably the safest and least time consuming way to do this would be to go for a managed investment with your bank, like an ISA. ISA, or Individual Savings Accounts which allow you more flexibility, like not having to tell the tax man about your returns. You see, an ISA is a tax free savings investment which means you don't have to declare your capital gains, saving you up to £7,000 each financial year.
The ISA was a Government initiative introduced in 1999 to replace the old tax exempt savings accounts such as TESSA's (Tax Exempt Special Savings Account) and PEP's (Personal Equity Plan), which will run until at least 2010.
But not everybody can have an account. You must be over the age of 18 years old for a Maxi ISA or over 16 to qualify for a Mini Cash ISA. You MUST be a UK registered applicant for tax purposes, but if you are working overseas, or in a Civil position such as the armed forces you also qualify. ISA's cannot be held as joint accounts.
Both types of ISA contain several components, with two different components to invest your hard earned cash into. These are ‘CASH' and ‘STOCKS & SHARES'.
The cash side of things is the simplest form of an ISA, allowing you to invest into cash unit trusts, national savings or bank and building society deposits. All of these items are ideal short term investments with easy access to your saved cash, anybody over the age of 16 can benefit from this type of saving with a Mini Cash ISA or the cash component of a Maxi ISA. Cash ISA's will return your amount invested plus interest, and will allow for a minimum return. You can check out cash ISA's by typing ‘cash isa comparison' into a search engine such as Google.
Stocks and shares on the other hand are a different beast altogether. You will be investing into collective shares like unit trusts, investment unit trusts, stock exchange shares, bonds, gilts and life assurance. As such it is for a much more long term investment, and is ideally suited to those of you who are prepared to leave your money for some time, usually over five years. Of course as with any stock market investment, your capital will fluctuate and there is no guarantee at the end of your investment term that your return will exceed your investment.
There are two types of ISA - MINI & MAXI. You can only invest to one MAXI or two MINIS (one for cash) & one for investment ISA's in one tax year. You cannot invest in both in the same financial year.
The MAXI ISA allows investment into two different components, you must have stocks & shares, but you have the option of Life assurance and cash components also. There is a maximum investment allowed of £7,000 for each financial year, which can be divided between the two components however you see fit.
A MINI ISA is similar to a MAXI ISA but you can only invest in one component each financial year. Unlike the MAXI, the investment amount is fixed for each component. If you don't like to take risks, or you only want a cash ISA, this is most likely your favoured option. It does allow greater flexibility, providing you with the option of your bank handling the cash ISA and a specialist equity company dealing with your Stocks and shares ISA (although this does limit your stocks and shares amount to just £4,000, which could be higher with a MAXI ISA).
When the maximum amount has been invested for each year, you are unable to invest any further funds. This remains so even if you withdraw any money from your ISA. So if you have invested £2,000 in a cash ISA, you can only invest a further £1,000 for the remainder of the financial year. If you withdraw £800 (leaving £1,200 invested), the remaining investment is STILL £1,000 and NOT £1,800. The maximum investment amount is how much money you put into the ISA in each financial year - regardless of any withdrawals you may make.
There are other products available on the market at present such as Stakeholder Accounts. These are similar to ISA's but have differing rules regarding investment amounts, minimum deposits, and regulating issues. There is much more information available on these by typing ‘stakeholder investment products' into a search engine such as Google.
Always remember to read ALL of the fine print and to ask any questions you may have before investing any money. If your questions are met with inadequate answers then go elsewhere, there are many products available with very appealing rates. |
