ISAs: Investments with Tax Breaks

The struggling economy has caused a lot of people to rethink their financial strategies. Because of the unpredictability of the market, more people are looking to invest as a way of securing their future.
If you are new to investments, it can be daunting trying to figure out which type of investment is suitable. Times are hard and you want an investment that will yield substantial earnings at the lowest possible risk. If this is what you’re looking for, you can explore ISAs.

ISA Explained

An ISA or individual savings account is a product where your investment is shielded from taxes. ISAs come in two forms – stocks and shares ISA (also referred to as equity ISA) and cash ISA.
Equity ISAs can come in the form of shares, bonds, trusts or life assurance investments. This type of investment can potentially earn a huge amount of money plus you are afforded the professional expertise of a fund manager. An equity ISA is also riskier however and as such, there is also the possibility that you will lose money.
A cash ISA on the other hand, poses fewer risks to the investor. Another attractive feature is higher interest rates compared to a regular savings account. This type of investment however, is seen as practical only in the short-term.

Benefits of an ISA

The tax breaks that investors are provided with are certainly the main advantage of ISAs. On a regular savings account, you will typically be charged 20 percent tax on interest. Your investments are also protected against capital gains tax so money is not deducted from whatever profits your investment makes.

Rules to Remember

If you choose to go for an ISA, it will be helpful to know the rules that this type of investment is bound under. In a given year, you are allowed to invest in two separate ISAs – one cash and one equity ISA. You can invest up to £3,600 yearly in a cash ISA whilst a limit of £7,200 is imposed on shares and stocks ISA.
An individual may choose to move the investments in a cash ISA to an equity ISA but not the other way around. You can also switch ISA managers if that is your preference. If you invested in a cash ISA, you can transfer to another ISA manager and choose to retain the cash ISA investment or move your money into an equity ISA. If your investment is an equity ISA however, you can change managers but not the type of investment.