Getting as much out of your money as possible becomes increasingly important as we get older. Our thoughts might turn to luxury holidays, home ownership, home improvement or even retirement, which means having a little nest egg to rely on makes it a little easier to meet those costs, but what is the best way of building one up?
ISAs, which usually come in two forms – Cash and Stocks and Shares, are ideal for anyone hoping to save money long-term while also gaining significant amounts from interest every year. Unlike some other types of savings account on the market, ISAs are more likely to help you profit for two reasons:
- Up to a point, your savings and interest gained are tax-free
- The interest rates that come with ISAs are generally higher than those on offer for ordinary savings accounts
(Related – Ideal asset allocation for retirement, per age)
Stocks and shares ISAs are pretty useful for helping money grow further. How they work is that the money deposited into the ISA is then invested into stocks and shares.
If it works, then any gains made could be substantial, but there is one major risk – as well as possibly going up in value, should the price of each share/stock go down, so does the value of the money in the ISA.
Both types of ISA have a limit on the amount you can put in without the interest being taxed. For the coming tax year, that limit is £5,760 per ISA. You’re allowed to open, at the most, one of each type every year and then transfer any money that’s not equivalent to the maximum amount that’s tax-free into ISAs for the following financial year
A safe choice
For the more cautious saver, investing in a Cash ISA is the more secure option. While the potential for your money to grow each year isn’t quite as high, having one at the very least will mean that your hard-earned cash will be safe and, providing you stay within the tax-free threshold, remain untouched until the new tax year begins.
“YBS Cash ISAs are designed for money that you may wish to access in the short or medium term to suit different needs”, said a spokesperson from Yorkshire Building Society.
“Once you’ve invested up to your maximum allowance for the tax year, we have other savings options for your short and longer-term savings goals (Read – Prioritize Saving Goals in 5 Steps). With us you can transfer your old ISAs with just two simple steps and we’ll do all the paperwork for you.
“Switching could really make a huge difference to the amount of interest you’re earning and, using our Savings Rate Checker, we can tell you quickly and easily what rate your current ISA provider is giving you.
“That way, you can make sure that you’re getting a good deal and if not, you can switch to us. We’re a mutual building society you can trust owned by and run solely for the benefit of our customers, who are savoir members”, they concluded.
SB’s thoughts – This was a guest post targeted for UK audience. In US, the only tax saving investment we have is 401(k) and IRAs. I max up my 401(k) and IRA every yera, I think this is the best way for all US residents. There by, I urge all my readers from US to contribute to these retirement saving options as much as they can.