How to Select the Right ISA for Your Personal Needs

Individual savings accounts (ISAs) are incredibly useful financial vehicles for those who are looking to shelter as much as £20,000 pounds in a tax-free platform. Although these instruments were only introduced in 1999, a number of variants now exist. These are intended to cater to personal requirements as well as specific life goals. This is why appreciating the aspects of a handful of popular options is the best way to make an informed choice. Let us take a look at some of the different types of ISAs as well as what each entail.

Cash ISAs

Cash ISAs are arguably the most well-known options, as they enable you to place up to £20,000 pounds within a tax-free haven for medium-term goals (five years or less). Anyone 16 years of age or older can choose to open a cash ISA; ideal for those who wary about investing on the open markets and instead wishes to enjoy a simple way to earn a higher rate of return. These ISAs tend to be useful for those who are saving for their first home or hoping to purchase a new car in the future.

Stocks and Shares ISAs

As the name suggests, stocks and shares ISAs will allocate up to £20,000 pounds into a variety of assets (such as funds and investment trusts). The main benefit associated with this approach is that these ISAs tend to provide higher rates of return when compared to a standard cash ISA. Those who are 18 years old can activate a stocks and shares ISA; offering an excellent way to save for the future. However, the caveat here is that these vehicles tend to represent long-term strategies (more than five years).

Junior ISAs

Parents will employ a junior ISA to provide a "nest egg" for their child. Examples include saving for a university education or a deposit on a first home well into the future. Junior ISAs apply to all children under 18 years of age and the money will be immediately accessible after their 18th birthday. The maximum amount that can exist within a junior ISA at any given time is £4,368 pounds.

Lifetime ISAs

Lifetime ISAs are generally intended for those under 40 years of age. Up to £4,000 pounds can be placed within this account each year until the age of 50. Additionally, some individuals may be eligible to receive an additional £1,000 pounds in government aid. It is important to note that withdrawals can be restricted in terms of their purpose. The most common types of approved withdrawals include first-time home purchases and funds accessed after the age of 60. Early withdrawals for other requirements may be subject to a surcharge of 25 per cent.

These are four of the most common types of ISAs currently available to residents of the United Kingdom. While their basic purposes have been outlined above, it is always a good idea to speak with a financial adviser in order to choose which is the most appropriate for your needs.