which ISA is the best for you

Many of you would have heard of ISA accounts. These however are not as widely spread and popular as they really should be. The benefits these offer are seriously impressive though.

I want to share today more about ISAs and what type of the account is the best for you to use with different end goals in mind. If used correctly – ISA can open the doors to a very bright future for you.

Below I will start by reminding what an ISA is. A quick reminder of different types available won’t hurt either. I will then cover a couple of popular and often demanded scenarios when it comes to personal finance. No matter what your end goal is – there like is an ISA that will help you arrive there!

what are isa accounts

A while back I have covered the basics of what ISAs are and what types are available. The article above should be a great start for anyone new to the topic and looking to expand their knowledge.

A very short summary of these is – ISA is an Individual Savings Account. These accounts allow the holder to save/invest. The biggest upside to these – you don’t have to worry about tax… ever!

There are few watch outs with these to keep in mind. Firstly, the maximum you can invest into ISA is £20,000 per financial year. The more you use – the better as the remaining balance doesn’t get transferred to the following year.

Secondly, there are also rules around how many ISAs you can have. This one is important to keep in mind if you want to enjoy the benefits of multiple providers. I would suggest reading this article to understand these rules better. 

which isa should I use when looking to buy a home?

Buying your first home can be a very exciting yet stressful time. The excitement of getting the keys is amazing. The fees you have to pay in order to get the keys can be scary. Planning for these is vital!

The biggest expense related to buying your first home however will be the deposit. This is where ISAs come very handy.

I would personally use a combination of multiple ISAs here. First one would be LISA – otherwise known as Lifetime ISA. You can deposit up to £4,000 into it every year. The beauty of these is – the government will top up your account by 25%. I would make sure to use the maximum cash here first.

You then are free to either invest or save the balance on your account. The remaining £16,000 of your annual allowance I would either put towards Cash ISA or Shares ISA. This will mainly depend on how soon you need the money.

If you know you won’t be buying any time soon – you can invest in a stock market. I would suggest an index like S&P500. Only do this if you won’t need money for at least 5 years.

If you might be buying sooner – go for government bonds or fixed term cash ISAs. The main issue here is – these will be a period you have to wait to get all your money back topped up with all the interest.

If you will be buying in a very near future – put your money into cash ISA that gives you the flexibility of withdrawing your money at any point. 

This will all depend on when exactly you are planning to purchase your property.  

what about retirement planning?

This is often a reason many people open ISAs as well. While you are paying pension through work and expecting to get government pension on top – having something extra is never a bad idea.

The first consideration you need here is – what age are you planning to retire at. This will be a key driving factor of which ISAs might work the best.

If your plan is to retire after 60 – LISA should be included on the list. Getting the 25% of your investments for free from the government is not to be missed here.

If you plan to retire before 60 – other ISAs could potentially give you more flexibility and allow to start pulling out money at an earlier age.

Since retirement planning is normally done on a significantly longer time frame – I would suggest investing more into index funds. The chances of you loosing money on a long enough time frame are typically very little.

I would potentially consider adding some bonds or fixed term cash savings to the mix in the current market. The interest rates some of these offer currently are north of 5%. 

Since you know the money will not be needed for an extended period of time – you can combine index with fixed cash assets to reduce the fluctuation of the value of your portfolio.

I personally would suggest using the methods that I described in this article to maximise the value of your retirement pot.

I need to plan my kids university fund

When it comes to your kids there is actually an additional ISA that can be used. This is called – Junior ISA. What this does is increases the total amount you are able to invest per year.

Every adult currently has a £20,000 allowance to invest. What Junior ISA does – adds additional £9,000 you can invest tax free per year. The catch here is – it is only your child who is able to access this money once they are 18 years of age.

When it comes to the portfolio for you to invest into – there are 2 ways to look at it. One, conservative. Simply invest in long term government bonds. You can easily calculate how many years there is for your money to grow.

This approach gives you easy to calculate returns so it is easier to plan how much you need to be investing each year in order to get your kids tuition fees covered.

The second approach is a bit more risky however the returns can be way nicer. To start with – you invest into an index fund, e.g. S&P500. 

When there is 5 to 10 years left before your kids university – start reducing your index holding. Instead start picking up government bonds that will pay you guaranteed returns and significantly reduce the risks for your portfolio.

I have a little spare cash to invest

In case you are sitting on some spare cash and want to make sure it starts working for you – investing is a right thing to consider.

The options to go after will depend on your timings. If you have cash yet want to have it accesible – simply go for a cash ISA. The returns won’t be the best however something is better than nothing.

You can also split your cash. Some of it goes into liquid cash ISA while a portion of it you don’t need for a longer period gets locked up for longer period of time.

If you can’t commit to at least 5 years I would suggest bonds or fixed term ISAs. For period of over 5 years I personally would consider index funds.

The riskier and more longer term you are able to commit to – the better the returns you can expect.

summary

As you can see from the above – there is a strategy for anyone. On top of that – there is a wide range of products available to pick from.

If I haven’t covered the scenario you are in – first think of the term of your investment/saving. Short – go for liquid investments like cash ISA. Less growth however easy access to your money.

Mid term – start mixing in fixed term ISAs and bonds. Long term – broad market index funds are a great strategy to explore.

If you have decided on what ISA is right for you and know the mix of products you want to go after – next step is picking a platform. While there are many available for you to pick from – one I would personally recommend is HL.

If you are more aware of what exactly you need from the platform – research available options. There is a growing number of apps, banks and investment platforms that offer different rules, T&Cs and benefits.