ISA Savings Rates
4 Things You Need to Know About ISA Savings Rates...
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Are you looking for the highest ISA savings rates? While a high rate is attractive it does not make for the best investment. Individual Saving Accounts (ISA's) is an investment vehicle that is primarily designed to encourage people to save. It offers fantastic advantages that you cannot get with any other type of investment which makes it irresistible for anyone looking to invest cash. The recent economic meltdown has made the situation even better for those who use ISA's since people are not saving money - and the government needs to encourage saving and investing. The ISA limit for 2010/2011 is the highest in history and with a gradual increase every year, its truly become a worthwhile investment option.
ISA's offer several distinct advantages. Here are some of the most important reasons why you may want to invest in a cash ISA.
1. Income Tax
Saving your money in a normal savings account can see you pay as much as £25 per £100. With ISA's there is no income tax that will be deducted.
2. Capital Gains Tax
The main reason why investors love ISA's is because there is no capital gains tax on investments in your Individual Savings Account. Capital gains tax needs to be declared to the Inland Revenue as the "profit" you make on an investment. ISA's need no deceleration up to the allotted amount.
3. Interest
ISA's have some of the best interest rates and will beat any cash savings account out there. The rates are also more attractive than many mutual funds and money market accounts.
4. Stocks And Shares
ISA's have become incredibly flexible and is no longer just for traditional cash savings. You can also invest in bonds and shares that have a greater long term benefit.
5. Disclosure
Investing in stocks and shares require a full declaration of income for tax purposes. With ISA's its much more relaxed and its designed as a easy-to-use investment vehicle and you don;t have to declare anything about it for tax purposes.
Choosing An ISA
If you are looking for the best cash ISA, then you are probably inundated with options. Because this is such an attractive investment vehicle, there are countless providers with different packages to "sell" you. Choosing the right ISA is important to make sure that you optimise your tax benefit without losing too much on fees and other hidden costs.
There are basically 3 ways to invest your ISA limit (check the IRS for latest limits).
- Up to £5,100 in a cash component with banks and/or building societies.
- Up to the full £10,200 in stocks, shares and bonds
There are also 3 different kinds of ISA'
1. Maxi ISA: When you invest the full limit with one provider - even though you can split it across 2 or 3 different components.
2. Mini ISA: When you split your ISA across more than one provider. Typically you can have one for cash, one for insurance and one for stocks and shares.
3. TESSA only ISA: When a TESSA expires, the capital can be re-invested in a TESSA only ISA without it counting towards your annual limit.
Although you are allowed to invest in both a Maxi and a Mini ISA in the same year you cannot reinvest it back once you have withdrawn any amount. Cash ISA's are great investments but the limit is quite restrictive in terms of how much you can invest in any given tax year. Its important that you invest the full amount every year and if you are nervous about stocks, then any ISA provider can help you simplify things by investing in a mutual fund and rolling your ISA limit into it.
Self select share ISA's can allow you to use your allotted ISA limit for shares if you prefer to buy and invest in shares on your own. For the majority of people however, an investment trust will be the most secure investment with the least amount of "maintenance" and risk.
