Which ISAs are good right now?
We’re a month into the new tax year in the UK, which means your personal ISA allowance of £20,000 has reset and you might be in the market for a good solution.
There are four main types of ISA: cash, stocks and shares, lifetime and innovation finance.
The latest figures from HMRC show that women hold 52% of all ISAs – but most are choosing cash over stocks and shares. Cash ISAs are a bit like savings accounts, although you don’t pay tax on the interest. That means say you see that a savings account and a cash ISA both have an interest rate of 3%, the cash ISA could actually get you something like 3.25% or more.
Paragon Bank has a 3.35% cash ISA right now that is flexible (although the rate drops after three withdrawals) and can be opened with just £1.
You can also open fixed cash ISAs, where you have to keep your money in them for a set period of time. Close Brothers is offering 4.25% on a one-year fixed ISA, and Newcastle BS is offering 4.4% on a two-year one.
In a stocks and shares ISA, you put your money in as you would a savings account but then at some point, and it doesn’t have to be right away, you can invest that money, usually in company shares or funds (which are basically a ready-made collection of shares and other investments), and which have the potential to have higher returns than saving in cash (although there is no guarantee). And any gains you make are not subject to capital gains tax.
Investments work better over a longer period of time, but there are flexible ISAs now where you can take out your money if you need it and you can still replace it within the same tax year, without it impacting your overall allowance.
Finding the best stocks and shares ISA will depend on your requirements. Decide:
How long you can keep the money in there for
Whether you want to invest the money yourself or have the platform do it
Whether you want it invested ethically
How much money you can put in now and how much you can put in regularly
Then look here for a run down of the different platforms and see which ones meet your requirements. Platforms are to ISAs what banks are to savings accounts, essentially, and you’ll see on the MSE tables in the link how much each one costs to open an ISA with, how much you have to deposit, and whether you can invest the money yourself.
With a lifetime ISA (LISA), you can save up to £4,000 a year (plus a 25% bonus from the government) and use it to buy a first home of up to £450,000, if you’re between 18 and 39. LISAs can also be cash or investment ISAs and you can have them alongside your other ISAs (as long as you don’t go over your personal allowance). The best cash LISA at the moment is from Moneybox, which is offering 3.5%.
Innovation finance ISAs are another type of investment ISA where you can invest money in peer-to-peer (P2P) loans without paying tax on the interest you earn.
P2P lending is where you invest in small businesses and individuals rather than the big companies you’re more likely to see in your stocks and shares ISA. These tend to be thought of as ‘riskier’ investments but may appeal to ethically-minded investors who don’t want to see their money propping up big corporations.
Perhaps unsurprisingly, a stat that has been doing the rounds is that women’s investment in P2P lending rose 430% last year from the year before - you can find innovation finance ISAs that lend to women-led businesses, housing programmes and all sorts. Have a read of this article on one woman’s experience opening an innovation finance ISA with Triodos as your action of the week and let us know if it throws up any more questions about them.