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How ISA calculators work

An ISA is a vehicle that can be used for investing money into a tax-free savings account. The initials stand for Individual Savings Account. There are five common types – a cash ISA, an innovative finance ISA, a junior ISA, a lifetime ISA, and a stocks and shares ISA. This article will explore the latter of the five, focusing on the stocks and shares ISA calculator, a device that can be used to calculate how much your ISA is worth.

How ISA calculators work: Summary Table

What is an ISA calculator?It helps you work out the future value of your ISA account
What do the initials ISA stand for?Individual Savings Account
What is the tax-free stocks and shares ISA allowance?£20,000 per annum
Why is an ISA tax efficient?You don’t pay taxes on interests, dividends, profits, or withdrawals

What exactly is an ISA?

ISAs are a tax-efficient way of investing your money, with the goal of giving you a return on your investment over a fixed period of time – anywhere from one to five years and possibly beyond. You can have any type of ISA, but the maximum amount you can invest across all of the types, tax-free, is £20,000 per tax year.

In some cases, your money is locked away in an ISA for a pre-agreed term. Unlike a bond, however, it is possible to access it, although there can be a financial penalty for doing so. You can use an ISA calculator to get a picture of what your investment will be worth upon maturity. You have to be 18 years of age or over to take out an ISA.

Is an investment ISA the right product for you?

An investment ISA is another name for a stocks and shares ISA, and the first thing to consider with this product is how comfortable you are investing your money in stocks and shares. There is a certain amount of risk due to the ups and downs of the stock markets.

The attraction of an Investment ISA is that your investment can earn significantly more interest than it would if it were put into a Cash ISA. But the word can is the key. A stocks and shares ISA calculator is a tool that has been designed to show you how much interest you will make if you choose this type of ISA.

Setting up a stocks and share ISA

The first step to think about if you are considering setting up a stocks and shares ISA is how much you would like to invest. At present, the tax-free allowance is £20,000 per annum.

Because of the inherent volatility of the markets, it’s not advisable to set up an Investment ISA if there is a chance you’ll need to access the funds in the near future. If this is the case, you might be better off choosing a cash ISA instead.

If you are comfortable with the idea of investing your money into a stocks and shares ISA, the next thing is to consider whether you want to set it up and manage it yourself or employ the services of a wealth management consultancy. Whichever route you prefer to take, our ISA savings calculator will show you how much interest your investment could make.

How an ISA investment calculator works

Even if you are comfortable with arithmetic, working out percentages can be challenging – this is only made more difficult by the miracle of compound interest. An ISA investment calculator does all the calculations for you automatically.

An ISA saving calculator will have several boxes into which you can enter appropriate details. The number of boxes will vary depending on whose ISA return calculator it is you use. These fields cover things like:

  • The amount of a one-off lump sum investment
  • A regular contribution amount
  • The frequency of contributions
  • The term
  • The anticipated interest rate

After you enter your figures into the stock and shares ISA calculator, you simply click “calculate now”, and you will get an instantaneous forecast. It will, of course, be a forecast and not a guarantee.

How much your investment ISA could be worth

The key thing about an ISA is that you will not pay tax on the interest or any withdrawals you make, and a stocks and shares ISA calculator will show you how much that interest could amount to.

What timeframe should you invest over?

The length of the term of your ISA is down to you to decide. But there is one thing you must take into account with an Investment ISA, and that is the volatility of the stock markets. The shorter the term, the less return you are likely to get – the longer the term, the more you could get – in theory. A stocks and shares ISA calculator is often “weighted” to take this into account.

Existing ISA checklist

If you already have an ISA, you should keep tabs on how it is performing, especially if it is a long-term investment like a lifetime ISA. A stocks and shares lifetime ISA calculator can help you to do just that. Once you have your projection, you need to ask yourself:

  • Is the return on my investment lower than inflation?
  • Am I spending too much of my private time managing my investment?
  • Are the fees I am paying eating too much into my returns?

A stocks and shares ISA calculator with projection features can give you an indication of how your ISA will perform, and that can assist you in answering some of the questions on your checklist.

Investing money can be a risky business. Unless you are a personal finance professional, it is always a good idea to have a free, no-obligation chat with a wealth management consultant. Money is difficult enough to earn, and the last thing that anybody can afford to do is to fritter it away through the lack of good advice.

FAQ

What does an ISA calculator do?

An ISA calculator helps estimate how much your ISA would be worth in the future.

What types of questions does an ISA calculator ask?

The questions depend on the ISA calculator. For example, you can be asked the amount you’d like to invest, the value of your existing ISA, the number of years you want to invest, the ​​frequency of contributions, your risk level, and the expected growth rate.

Why should you use an ISA calculator?

It can help you make investment decisions, but don’t ever think of it as a prediction of future performance or a guarantee.

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.