Having some form of savings account is important at any age. The younger you are when you start saving, the better. However, nobody is too old to start saving money. There are many different types of savings accounts and ways to save. Each bank is different and has different rates of interest. It can be quite complicated if you are not really sure what you are looking for. One of the best ways to save is by opening an ISA.
What is an ISA?
The acronym ISA stands for Individual Savings account. They are like a standard savings account, however, they offer tax-free interest. This means that you are able to get more interest overall. ISAs are offered by banks, building societies, NS&I, insurers and asset managers. Each ISA will have a limit as to how much you can save.
What are the different types of ISAs?
When you are looking to open an ISA, you may get quite overwhelmed with just how many different options are out there. You will want to look for the best-fixed rate ISAto suit you and your savings needs. Each ISA will have different pros and cons so it is worth reading up on each one to see which one is best for you. For example, it is wise to find out the difference between a Cash ISA and a Lifetime ISA. A Cash ISA allows you to earn up to £1,000 tax-free interest per year. A Lifetime ISA offers a 25% tax-free bonus on the money that you save, however, you can only gain interest on up to £4,000 per year.
If you are unsure on which type of ISA to go for, the internet is a great resource and you can learn a lot about each different one. Before you make any decisions, you need to have a clear plan as to how much you are going to save and how quickly you want to be able to access the money. Some allow withdrawals whenever you please, others will not allow you to access your savings until a certain date.
Why are ISAs better than a normal savings account?
With an ISA, you can earn more interest and it is also tax-free. This means that if you put the same amount of money into an ISA and a normal savings account, the ISA will yield you the most interest. If you have a large amount of money to save for something in particular, like buying your first home then an ISA is ideal.
What can you use the money in an ISA for?
It’s completely up to you! It’s your savings, so you can do whatever you please with the money that you have saved and the interest that you have earned on it. You can spend it on your first home, or you can save up for your dream car. If you want to just save some money for your retirement, then that’s completely fine too. Many people will open up a Junior ISA for their children which they can then access when they turn 18. This is a great idea if you think your child will want to go to university or learn to drive. Having some savings behind them can help them to pay for their tuition fees or their driving lessons and first car.