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Which is the best ISA?

Which is the best ISA, may seem a simple task. It quicky becomes more difficult once you discover that it is what is inside the ISA that counts. If you invest in a stocks and shares ISA, the value of the funds within will go up and down daily. At Woodward Financials, we use an active investment approach that has proven, in difficult market conditions, to give returns that would satisfy many investors that sought out the best ISA performance.

The best investment funds today are not likely to be the best in two- or three-month time, this is why an active investment approach champions a passive investment approach.

What is an ISA?

An ISA (or Individual Savings Account) is a tax-efficient way of saving money. You can save or invest any amount up to your annual ISA allowance each year, dividends are tax free along with income producing investments, exempt capital gains and tax-free interest.

How do ISAs work?

A new ISA allowance will be allocated each tax year, which is the maximum amount you can pay into your ISA during that tax year.

The current ISA allowance is £20,000 but image how quickly a household could produce tax efficient income using additional allowance such as your spouse, £40,000 into ISAs in March and then another £40,000 in April using two allowances, creating £80,000 ISA producing tax efficient income.

You cannot carry your ISA allowance from one tax year over into another. Therefore, if you do not use it, you will lose it. The UK tax year runs from 6th April to the 5th of April the following year.

However, drawing money from an ISA, as long as you put it back before the end of the tax year means you will not lose the ISA status of the withdrawal, as an example if you draw £40,000 for a deposit on a property mid-April you have until the end of the tax year to put back into your ISA.

What different types of ISAs are available?

What is a Cash ISA?

A cash ISA is like a savings account, and you will receive a specified amount of interest which you will not have to pay income tax on. There is no risk of capital loss as none of the money is invested, one thing to consider is that when inflation is high, the only asset class guaranteed to lose money over time is cash.

What are Stocks and Shares ISA?

A stocks and shares ISA enables you to invest in a wide range of shares, bonds, funds, investment trusts and many more. Stocks and shares ISAs are designed to be held for the medium to long term, or five to ten years. Stocks and shares ISAs deliver better returns than cash ISAs over the long term.

What is a Lifetime ISA also known as a LISA?

A lifetime ISA can be used for saving for your first home or for retirement and you can hold cash or stocks and shares in your Lifetime ISA, or a combination of both with the same provider.

You can put up to £4,000 into your lifetime ISA each year, until you reach age 50 and you must make your first payment into your ISA before you are forty. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. The money held in a lifetime ISA can only be accessed in certain circumstances, so it is important to consider if this type of ISA is right for you before opening one.

Innovative Finance ISA

An innovative finance ISA is an account that includes peer-to-peer loans, or investments you make in a business. Investors are paired up with borrowers who do not want, or cannot get, a traditional bank loan.

Borrowers can consist of small businesses, individuals and property developers and interest rates are higher than those available on cash ISAs. As a result, investing in this type of product comes with significant risks and returns are not guaranteed.

Can I transfer an existing ISA?

Yes, you can transfer existing ISAs to Woodward Financials. It is a straightforward process, but there are rules which must be followed to ensure that you retain your previous years subscriptions and tax benefits.

By undertaking a review of your current ISA savings and providing expert advice tailored to your individual circumstances, we can help you decide the best course of action.

Can I open an ISA for my children?

Yes, you can open an ISA for your children as soon as they are born, or under the age of eighteen. These are known as junior ISAs and the annual allowance is currently £9,000. As with other ISAs, you can have a cash junior ISA or a stock and shares junior ISA.

When should I open or top up an ISA?

It starts with an ISA, in most cases this is the first type of investment an adviser would recommend, people choose not to think about their ISAs until the end of the tax year is approaching, but you can open an ISA or top an existing ISA up at any time throughout the year!

The benefit of investing early in the tax year is time, not timing. The longer you have your money invested in the market, the greater the time for your investment to grow. At Woodward Financials we do consider market conditions and investing at discount when the markets are low can be beneficial.

You might also consider spreading your ISA allowance over the tax year and adding to your ISA every month. This may seem less daunting than committing a lump sum.

Things to consider before opening an ISA

The most important thing to consider before opening an ISA is what you are saving the money for. Once you know this, you can determine which ISA is best suited to your needs.

If, for example, you are putting money away for an emergency fund, you may need access to this money quickly and so a cash ISA might be your best option. If you are saving for your dream holiday in ten years’ time and want to make use of the compound interest, then a stocks and shares ISA might be your best option. As you can see, the right ISA really does depend on what the money will be needed for in the future.

Woodward Financials were awarded best wealth management firm in 2021 and again in 2022 and have a team of advisers ready to help you make the most of your ISAs.

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For more information you can contact David on 01753 839348 or email