Tax year end: How to do more with your ISA.
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
The end of the tax year is just one week away and now more than ever it is important to ensure you are fully invested to protect against rising inflation. One of the ways you can do this is through an ISA.
What is an ISA?
An ISA is an Individual Shares Account, it is a tax-free savings or investment account. With an ISA you won’t pay any Income or Capital Gains Tax on the return your ISA generates or the increase in value. There are many different types of ISA available, including Cash ISAs and Stocks & Shares ISAs.
What are the different types of ISA?
The most basic ISA is the Cash ISA. This is where your money is invested in relation to a set or variable interest rate. You can invest up to £20,000 in the current tax year. You may also have heard about the Junior ISA, allowing you to invest up to £9,000 on behalf of your child which they can access from age 18. A Junior ISA can be either a Cash ISA or a Stocks & Shares ISA.
A Stocks & Shares ISA is one of the key ways you can protect your money from inflation. A Stocks & Shares ISA at True Potential is invested in diversified Portfolios, meaning your money has the potential to grow in relation to the funds invested in. Diversification means your eggs aren’t all in one basket.
Cash ISA Vs Stocks & Shares ISA
The potential advantage of a Stocks & Shares ISA over a Cash ISA is that your investment growth isn’t tied to an interest rate. Interest rates are historically low, typically below 1%, meaning a Cash ISA is limited in its growth potential.
In contrast, a Stocks & Shares ISA is invested in funds that could grow at a rate above inflation. Keep in mind that stocks and shares can go down as well as up, but over the long-term in diversified investments you have the opportunity for greater growth than cash.
Contrast this again with cash left in the bank. Typically, this money’s value stays still, at a time when inflation rates are rising. In other words, the price of goods in the shops is going up, while your cash value stays the same. Even in a Cash ISA, you won’t find a rate that could beat the 5.5% inflation reported in February 2022. Another way to think about this is your £1 is worth 5.5% less – 94.5p.
With all this in mind, think about adding to an ISA before April 5. You can contribute up to £20,000 into an ISA in the current tax year. That allowance will be reset on April 6, making it a case of “use it or lose it”.
Why True Potential?
Investing with True Potential means you benefit from award winning technology, world class fund managers, and globally diversified Portfolios that aim to minimise risk and maximise reward. Our in-house Investment Management team, work with Fund Managers such as UBS and Allianz to invest your money, and you can track performance in the True Potential app.
You’ll also find daily video updates within the app to explain True Potential Investments take on what is going on in markets, as part of our daily Morning Markets series.
What to do next and why invest now?
Consider your disposable cash and if you can add to an ISA before tax year end, giving yourself the opportunity to fully utilise your allowance and, with a Stocks & Shares ISA, beat inflation. Remeber to consider your attitude to risk, can you afford to lose what you invest if markets go down?
You’ll have a new ISA allowance of £20,000 once the new tax year begins on April 6. Consider fully using this at the earliest opportunity rather than waiting to the same time next year. By investing early in the tax year you are giving your money more time to grow, potentially compounding towards greater wealth.
Do more with your money, invest in your ISA today.