If you want to grow your wealth fast, then
you need to minimise taxes! And the best way to do that in the UK is through an ISA. But which ISA do you choose? In just a few minutes we’re going completely demystify ISA’s. Let’s check it out. Welcome to Money Unshackled, the investment
channel that sets you and your finances free, be sure to hit subscribe.
This is Andy and I’m Ben and today we’re talking about the different
types of ISA. Firstly, an ISA is simply a tax wrapper that
means your money can grow tax free – free from income tax, Dividend tax and Capital
Gains tax. The ISA itself is not the investment, but shields your investment from the taxman. Almost everyone should be investing and saving using an ISA. The ISA allowance is £20,000 per year but you do have to be a UK resident to get
one. So what are the different ISA types? Number 1 is the Cash ISA. This is the simplest type of ISA. You put your money in a bank account and you earn interest on it tax free. You will be able to find many types of Cash ISA, some with easy access, and some where you fix your money away for a period of time. Whichever type of Cash ISA you find, you will notice they all currently pay insultingly low level of interest. As a result, we would not recommend having more than 6 months’ worth of your living expenses saved up within a Cash ISA unless you have a specific reason for having this level of accessible cash. A subcategory of the Cash ISA is The Help to Buy ISA. This allows you to save £200 a month plus an extra £1000 in the first month to help get you started. Your total accumulated pot will be topped up by 25% by
the government when it comes time for you to purchase your first house. This is an excellent way to buy your first home. In theory you can’t have both a normal Cash ISA and a Help to Buy ISA but some banks and building societies are bending the rules a bit on this, so you can have both but they have to be with the same provider. For example, Nationwide to do this. Number 2 is the Stocks and Shares ISA.
Now this is our favourite type of ISA because you can invest in Shares, all kind of Funds, Gilts, Bonds
and so much more. The true benefits of an ISA come when your returns are greatest so saving a small amount of Tax on a Cash ISA is of barely any significance.
Whereas, with a Stocks and Shares ISA the returns are potentially huge so this leads to massive tax savings, which then compound. The best place to get a Stocks and Shares
ISA is through an Investment Platform. The Investment Platform I use is through a website called Interactive Investor. Number 3 is The Innovative Finance ISA.
Now this is a close second favourite of ours. It is a new type of ISA, used by investors for Peer to Peer lending. Peer to Peer lending is a recent phenomenon whereby lenders i.e. you, can lend to borrowers through a peer to peer platform by cutting out the greedy banks. This is all arranged for you through the Peer to Peer platform. I personally use Funding Circle which invests to small businesses and gives you a return of around 7% after fees and bad debt. When you’re earning a 7% rate of interest you can see why it would make sense to stop the tax man from getting his hands on your hard-working money. Number 4 is The Lifetime ISA. This a long-term ISA and we have mixed thoughts on it. You can save up to £4000 per year, which is topped up to £5,000 by a 25% government bonus. You have to be 18 or under 40 to be eligible for one of these Lifetime ISA’s, and the contributions and bonus will only be paid until your 50th
birthday. However, you can only withdraw your cash without penalty from age 60 onwards unless you are using that money to buy your first house up to the value of £450,000. Here at Money Unshackled we encourage the pursuit of Financial Freedom above all else, and the access limitations on a Lifetime ISA would mean that it’s not suitable for people with that pursuit in mind. However it is suitable if you’re using it to buy your first house. Number 5 is The Junior ISA. Now this is for those under the age of 18 and as of 2017/18, the amount you can save is £4,128 per tax year. Until the child turns 18 they cannot access the money but after that point they can do whatever they like
with that cash. As with adult ISA’s, the money can be split
between cash or stocks and shares. As this is a long-term savings vehicle we would suggest the money is invested in something like shares rather than Cash. That brings an end to the video. We hope that we’ve been able to explain adequately the 5 different types of ISA. If you have any questions, leave them in the comments section. Thanks for watching, on this channel we talk about personal finance, investing, and all things money, be sure to click subscribe for more great content. This is Money Unshackled, see you next time.