I am always looking for ways to diversify my income, and investing is one of the ways in which I can both diversify my income and save money for the future. We have some pretty big financial goals for the next few years, and we believe that saving into ISAs will help us to get there.
Saving with ISAs
Putting money into an ISA, or an individual savings account, is a really popular way of saving money because you can invest up to £20,000 in the 2017 – 2018 tax year, tax free. There are four types of ISA accounts you can get:
- Cash ISA
- Stocks & shares ISA
- Innovative Finance ISA
- Lifetime ISA
In order to open an ISA you need to be over 16 (cash) or over 18 years old (Stocks and Shares) and under 40 (Lifetime ISA) as well as being a resident in the UK.
You can choose to save in a mixture of ISAs (bear in mind that a Lifetime ISA has a cap of £4,000 a year), as long as you don’t go over your £20,000 allowance across all ISAs.
How to save into an ISA when you don’t think you can afford to
Saving £20,000 into your ISA this tax year might seem very far off for you, but don’t let that stop you from making a start! Even if you can’t hit the £20,000 allowance, saving anything is better than nothing.
There are plenty of ways that you can trim down your spending or earn extra money to put into your ISA. Here are a few ideas:
- Take a packed lunch to work instead of buying it. Daily saving: £3-£5
- Complete online surveys to earn extra money. Monthly earnings: £50-£100
- Spend an afternoon comparing your utility prices – you might be able to save money by switching suppliers or choosing different tariffs/packages. Monthly savings: £50+
- Declutter your home and sell your unwanted items on eBay, at car boot sales and more. Earn up to £4,000 throughout the year
- Meal plan, which helps you to buy less at the supermarkets and reduce your waste. Weekly saving: £20+
- Are you a social media whizz? What about a spreadsheet junkie? If you have a service that you can offer, consider becoming a virtual assistant to make extra money. Hourly earnings: £20+
Why invest at the start of a tax year
Is there a perfect time to invest? Of course, investing at any time is better than simply not investing at all, but did you know that choosing to invest from the start of a new tax year generally means that you will be able to earn more? This is because your investment has longer to compound.
Here is an example for you – if an ISA investor used their ISA allowance at the start of every tax year since 2007, they could now be £8,500 better off than someone who invested the same amount of money on the last day of every tax year. Although this is a general example (remember that some investments can go down as well as up), it is a massive difference over the years!
Of course, it would be great if we could all put a lump sum of £20,000 into our ISAs immediately, but that might not be possible for many of us. You can still possibly see better returns if you start investing monthly from the start of a tax year rather than leaving it until the end of the tax year.
The tax year runs from 6 April to 5 April the following year, meaning that now is a great time to start thinking about any investments you want to make.
This post has been written in collaboration with Fidelity. Please note that the value of investments can go down as well as up so you may get back less than you invested. If you invest in an ISA there is no capital gains tax on growth and no income tax on interest. The value of tax savings and eligibility to invest in an ISA depend on personal circumstances. All tax rules may change in future.