What are Individual Savings Accounts?

Individual Savings Accounts (ISA’s) are a type of regular savings plans which can provide an alternative to the familiar high street cash deposit and savings accounts or the traditional forms of long term collective investment funds based on Stocks & Shares (equities).

ISA’s accept monthly or annual contributions or premiums from your source of income.

In the context of financial planning, individual savings accounts are primarily investment vehicles which are savings for the future and depending upon your personal objectives, growth performance requirements, risk profile and affordability, some types of ISA’s will be more suitable than others.

For instance, Cash ISA’s are suitable for individuals who require instant access to funds (capital) and/or have a zero risk profile. Accordingly funds in these types of accounts only offer low rates of interest and over the long term have little or no protection from inflation.

In contrast Stocks and Shares (equity) ISA’s (also known as Investment ISA’s)are designed for the capital to remain invested for a longer term, and whilst historically equities have provided much higher returns than traditional high street savings accounts, these types of investments have a higher risk element as the return of capital cannot be guaranteed.

 

What types of Individual Savings Accounts are available as Long Term Investments?

Long term investments in ISA’s are a form of saving for the future. Typically they will include:-

  • Cash ISA’s: Regular contributions into a Cash ISA do not attract tax relief but built up capital can be provided on encashment at anytime without incurring either capital gains or income tax. Cash ISA’s can be encashed at anytime without incurring charges  
  • Stocks & Shares or Investment ISA’s: Regular contributions into a Stocks & Shares ISA do not attract tax relief but built up funds in the selected investments can be provided on encashment at anytime without incurring either capital gains or income tax. Stocks & Shares ISA’s can be encashed at anytime but will incur charges.

 

Why should I make contributions to Individual Savings Accounts?

The major reasons for recommending ISA’s are the tax exemptions available on encashment, and additionally the potential fund growth opportunities in a Stocks and Shares ISA.

Nevertheless, there are certain contribution limits and fund charges applicable which are specific to each of the individual savings accounts which must be considered, together with their historical and expected performance of the funds (return on investment) and the implications of early encashment, fund transfers or stopping contributions.

 

How do I make contributions to Individual Savings Accounts?

The first and most important step after you have decided you may want to make contributions to an ISA is to have a discussion with us to provide you with independent financial advice.

Once we have agreed what the most suitable type of ISA is for your particular circumstances we make an application on your behalf to make regular contributions into a Cash ISA or selected fund of a Stocks & Shares ISA based on how much you can afford your personal tax situation and the amount of fund required at your chosen encashment date, at the acceptable level of risk you are prepared to take to match your needs.

 

Want to know more?

Talk to one of our qualified financial advisers on 01553 777600 or e-mail us at enquiries@ringassociates.co.uk

Also you may want to read the articles and associated links from the Financial Services Authority by accessing the following website at

http://www.moneymadeclear.fsa.gov.uk/news/product/individual_savings_accounts.html