When it comes to savings, an ISA has been the go-to choice since the turn of the millennium. After all, the interest rates are similar to routine savings accounts, and the fact that there is no tax payable makes it a natural choice.
What some people don’t realise, however, is that there are other sorts of ISA available too. An investment ISA follows exactly the same principles as a cash ISA, in as much as it acts in the same way as any other investment fund, with the added bonus that there is no tax to be paid on earnings and interest.
As with cash ISAs, there are plenty of investment ISAs to choose from, ranging from traditional products in your high street bank to online offers from specialist providers like the one here. Here are some tips for choosing the investment ISA that will best meet your personal needs.
What is your risk appetite?
Risk versus return – it is Investment 101 and is the first thing every would-be investor needs to contemplate. From the high-volatility world of cryptocurrency where fabulous fortunes can be made or entire life savings can be wiped out, to government bonds that are highly predictable but will never generate more than a modest return, investment decisions are all about trade offs. Be clear about what risk appetite means and where you stand on the spectrum.
The same applies in your choice of investment ISA. Consider how much money you can afford to tie up in your investments and keep in mind that prices can go down as well as up. If you take the approach of never investing more than you can afford to lose, you can’t go wrong.
What is your preferred platform?
Traditionalists who prefer to keep their finances offline can take a tour of the high street and visit a choice of financial service providers and banks. But in the internet age, a growing number are choosing the increased choice and flexibility that online platforms bring. These are also a good option for those who prefer not to keep their money locked away, with many offering investments that can be cashed in in a matter of days.
Watch your allowances
Anyone can invest up to £20,000 in an ISA. There are a couple of points to keep in mind here. The first is that it applies to individuals, so if you and your partner want to jointly invest, that effectively gives you an allowance of £40,000 between you.
The second is to remember that this applies across all ISA products. Many of us have some savings tucked away in a cash ISA. If this applies to you, there is nothing to stop you taking out an investment ISA too, but keep in mind that the £20,000 limit applies to your total holdings. In other words, if you have £5,000 in a cash ISA, that leaves you £15,000 to put in an investments ISA. Any investments above this will be subject to the usual taxation rules.
from Finance Girl http://www.financegirl.co.uk/choosing-the-best-investment-isa/
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