Q

What's an Individual Savings Account (ISA)?

A

It's a kind of tax-free savings account.

An ISA, short for Individual Saving Account, is the account that every beginning saver or investor in the UK absolutely must have. Why? Because money deposited in an ISA grows tax-free. Any growth — from interest, or investment returns — is 100% yours to keep.

There is absolutely nothing not to love about an ISA. But there are limits to the government’s generosity; as of 6 April 2017, UK residents are allowed to deposit a maximum of £20,000 per year into an ISA. ISAs are also incredibly versatile. You may choose to invest in stocks, mutual funds, or you may even choose to put it in an interest yielding cash ISA your bank offers. (Though, because of the low interest rate, we wouldn’t recommend this option.)

There are absolutely no penalties for withdrawal — whatever’s in your ISA is yours to spend however you like, whenever you like. An important caveat: if you withdraw out of your ISA without replacing it the same year, you’ll lose those tax benefits on that money.

So who can open one? Any UK resident (over 18 years of age for a stocks and shares ISA, over 16 years for a cash ISA) can — and should — have an ISA. And one more thing: you can only open an ISA at one institution per year. Wealthsimple would be a very smart place to start. Regardless of whether you have £2 or £20,000, we’d be happy to set you up with an ISA invested in the kind of equities that will supercharge your portfolio.

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