Individual Savings Accounts (ISAs) are designed to encourage and assist UK citizens to plan out their future finances by investing and saving using tax-efficient methods that let them keep more of their earned returns. Originally launched back in 1999, ISAs in both Stocks & Shares and Cash ISAs replaced previously available options, Tax-Exempt Savings Accounts (TESSAs) and Personal Equity Plans (PEPs).
Those looking to save and invest will find many kinds of ISA available to choose from, each designed to suit specific requirements of different people. UK residents can put up to £20,000 in their ISAs before paying income tax, and this entitled amount can be spread between different types of ISA.
In the following sections, we’ll take a closer look at two of the main types of ISA you can consider. Read on if you’ve ever wondered: what is the difference between Cash ISAs and Stocks and Shares ISAs?
How do Cash ISAs work?
A comparable option to how a Cash ISA works is a conventional saver account. Providing you’re aged 16 or older and you’re a resident here in the UK, you’ll be able to open a Cash ISA. Like a standard savings account, you can save money in it and receive interest payments in return. A key difference, however, is that with a Cash ISA, you can save up to 20,000 without paying income tax, while with a traditional savings account, you must pay income tax if you earn more than £1,000.
Cash ISAs may be seen as safe because savings won’t be subjected to market fluctuations, and funds can easily be accessed. However, they can have their downsides. If inflation increases beyond the interest rate offered on your Cash ISA, the value of the money you have saved will reduce, making them not always ideal for growing your nest egg.
What are Stocks and Shares ISAs?
Also referred to as investment ISAs, Stocks and Shares ISAs involve your money being invested in various assets, like property, bonds, shares and commodities. You won’t have to pay tax on any capital gains that you accumulate or income like dividends or interest that you earn. In simple terms, you can retain what you earn from your investments after all the necessary fees and charges are taken. To open an Investment ISA, you must be a UK resident and aged 18 or older.
An important difference between Stocks and Shares ISAs and Cash ISAs is that there is no guaranteed return. However, while the value of your assets may fall, they can also rise, offering higher returns than those earned from a Cash ISA.
ISA experts on hand
If you require a financial advisor in Chester or Shropshire, you can rely on Hartey Wealth Management for strong support. From guidance on how to take advantage of ISAs to an impartial view of your current finances, our professional team can offer expert advice. If you’d like to explore the question “what is the difference between Cash ISAs and Stocks and Shares ISAs?” further with us, get in touch today.
