In the world of finance where jargon and complexity reign, there is one product that stands out for its simplicity – the Isa.
Its function is simple. Whatever money you put in or make doesn’t get taxed. None of it. Interest made on savings? No tax. Capital gains on investments or dividends? No tax. It’s very straightforward.
The consumer-friendly simplicity of the Isa is no doubt one of the reasons as many as 42% of adults hold one. And why they’ve lasted longer than most financial products: Happy 20th birthday, Isa!
For millions of us, a Cash Isa is the first port of call when we’re ready to start building a savings pot for the future.
The Stocks and Shares Isa is where millions begin their investing journey.
The popularity and well-known brand of the Isa is perhaps why successive governments have appeared hooked on launching new ones.
At their launch in 1999, there were two types of Isa; now there are six.
When former Chancellor George Osborne wanted to launch a product to make investing for children easier, he launched an Isa – the Junior Isa.
When the government wanted to support first-time buyers, Mr Osborne launched the Help to Buy Isa. And to boost retirement savings – the Lifetime Isa.
The result has been that something that was well-loved for its simplicity has now been clouded with complexity so that it takes some time to unpick the pros and cons of each type of Isa to work out which one is best for you.
My fear is that this complexity is enough to put people off Isas altogether. This would be a great shame as the tax breaks and free government cash they offer is more generous than ever. The Lifetime Isa, for example – the latest edition to the Isa family – offers £1,000 towards your first home (or retirement savings) for every £4,000 you manage to save yourself. Not bad at all.
That’s why we’ve put together a free 16-page Easy Isa Guide, covering each type and its various foibles and positive features.
We also have a last-minute guide answering the most-common Isa questions, while Darius McDermott warns of the eight last-minute Isa mistakes people make and how you can avoid them.
But if you’re reading this and thinking – “Ha! I’ve done all this already – my money’s been carefully cocooned in an Isa for years” – learn from my mistake and watch out!
I had £2,000 in a Cash Isa that I’d diligently squirrelled away before university. It was in those dreamy days of proper interest rates and I’d put it in an account earning 5% interest a year.
In my final year I went to my local branch to check up on it. Off I went with a spring in my step, expecting to hear of all the lovely interest I’d accrued by leaving it to grow.
The bank clerk laughed openly at my utter bewilderment when they told me that for the last three years it had earned just a few pennies.
After that first giddy year of 5% interest, the rate had dropped to nought-point-something-abysmal.
Until that point, I had thought abstemiousness was rewarded.
But my Isa anger turned out to be a pretty good introduction into the world of personal finance, where the default is that loyalty costs and where if you turn away for a minute you’ll be slyly pushed on to a rubbish deal.
So when I checked my monthly broadband bill last week and found it had doubled since I signed up two years ago, I was furious – but not surprised.
It’s worth giving your Isas a spring-clean every year, to check you’re getting the best deal and you’re saving into the best type for you.
And if you’ve not already done it, do it soon. You can put up to £20,000 into Isas this year – but if you miss the deadline of 5 April, it’s gone.
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