Even when interest rates are low as they are now, your ISA allowance is something worth taking advantage of. When the government is allowing you to save £20,000 tax free each year, it’s a valuable opportunity.
But some people still worry about whether they should use ISAs. Here are the myths – and why you should ignore them.
Myth 1: ISAs are too complicated
Opening an ISA is much like opening any other account. The main decision is how you want to use your allowance: in cash, stocks and shares or a combination of the two. Since July 2014 you’ve also been able to switch between different types of ISA without affecting your personal allowance. So depending on how long you plan to save for, you could switch to a stocks and shares ISA to look for inflation-beating returns.
At Moneyfarm the only difference between opening an ISA and a normal account is the information you have to provide. When you open a Moneyfarm Stocks & Shares ISA we ask you for your National Insurance number (for tax purposes) and you must read an ISA declaration form. Otherwise, everything else is the same. You’ll be done in less than 10 minutes.
Myth 2: ISAs are expensive
ISAs are in fact a relatively cheap way to save. The cost of a stocks and shares ISA varies between providers, but this cost has come down in recent years. It is of course always worth looking at any charges to see how they might impact the returns you expect. At Moneyfarm. the first £10,000 you invest is free of management charges.
Myth 3: You can only open an ISA once
Every tax year you receive an ISA allowance. You can use it with your existing provider, or open a new ISA. What you can’t do is exceed your annual allowance for the tax year.
But you can’t top up a previous year’s stocks and shares ISA and open a new one in the same year – you can only have one stocks and shares ISA in any tax year.
Myth 4: ISAs are risky
A stocks and shares ISA is no riskier than any other investment in stocks and shares. Its value may go up or down depending on how those shares perform. Most providers will allow you to choose a level of risk that you’re comfortable with. Where a stocks and shares ISA differs from any other investment account is that it is free from capital gains tax. This means you will retain more of your returns than a normal investment account.
Myth 5: ISAs lock up your money
ISAs are now flexible and you can withdraw or top-up in a given tax year without impacting your allowance. Even an investment won’t necessarily lock up your money, but be careful when choosing your provider. At Moneyfarm there are no exit fees and the maximum amount of time you’ll be waiting to have your money back is seven working days. Your circumstances might change, or you might reach your goal, so we feel it’s important for you to be able to access your money and not be charged for that.
An ISA is a great way to make the most of your money. When it comes to your savings, using your ISA allowance is probably the simplest decision to make.