Think you know everythign there is to know about Isas? As the popular tax-free accounts turn 21, we look at the key facts:
1. Isas were introduced by the Government on April 6, 1999. The acronym stands for "Individual Savings Account" and they are a tax-friendly way to save or invest money. This mean that any interest or growth you enjoy on money in the accounts is not subject to tax.
2. If you don't use you Isa, you pay tax on your returns. Other investment accounts or standard savings account are subject to capital gains tax, which can eat into your returns.
3. The Isa allowance this year is £20,000. When Isas were first launched, individuals could save just £3,000 a year into cash accounts (known as mini Isas). This annual allowance has crept up over the years to the current level of £20,000, which can be spread across a number of different types of Isa.
4. You don't have to put the full £20,000 in one go. Most providers allow you to set up a regular monthly savings plan or add ad-hoc amounts into your Isa over the course of the year.
5. The Isa year corresponds to the tax year. Rather than running for a calendar year, your Isa allowance runs from April 6 to April 5 each year. If you use up your allowance in one tax year, a new one kicks in on April 6. If you don’t use your allowance you lose it - it doesn’t roll over.
6. There are four main types of adult Isas. These are cash, stocks and shares, lifetime, and innovative finance Isas. Help to Buy Isas have been srapped, meaning the accounts can no longer be opened, but if you already have one you can keep using it.
7. There is also an Isa for those under 18. Junior Isas - or Jisas - can be opened by parents and grandparents for a child from the moment they are born. Crucially, the child cannot access the cash until they reach age 18. The annual allowance for the Jisa has recently been bumped up to £9,000.
8. You can only open one type of each Isa per year. This means you can open one cash Isa, one stocks and shares Isa and so on every tax year. It is important to check that a new account accepts transfers in if you want to move across money you have saved in a previous tax year.
9. You can pay only into one Isa of each type per year. For example, if you have two cash Isa then you have to pick one to contribute to. Men hold an average of £29,448 in their Isas, according to latest data, and women £25,837.
10. Cash accounts are the most popular type of Isa. While 10.38 million men and 10.8 million women in the UK have an Isa account, women are much less likely to invest. In 2016/17 tax year men opened 1.46 million stocks and shares Isas, compared to 1.12 million women. Women opened 4.41 million cash Isas that year compared to 3.67 million men. You can find the top cash Isa rates here.
11. But women are better Isa investors than men. According to Hargreaves Lansdown, women typically outperform men by 0.25% a year. It might not sound a lot, but on a one-off £10,000 investment it means females would have an extra £2,209 after 30 years than their male counterparts. Find out which is the cheapest Isa provider for you here.
12. To open an Isa, you must be a UK resident. If you live abroad, you can only open an Isa if you or your spouse are a Crown employee, such as a civil servant, a diplomat or a member of the armed forces.
13. You don't have to stick with your bank for an Isa. While banks often offer competitive rates on cash Isas, for other types of Isa there are plenty of other providers out there known as fund supermarkets or platforms. Investors should be sure to shop around and find the platform that best suits their needs - and always check the fees and charges.
14. You can transfer funds to a different type of Isa. For example you can move your money from a Cash Isa to an Innovative Finance Isa if you want and can also move money to a different provider. But be sure to check for exit charges - some providers will charge you to move your money elsewhere. Find out why investors don't switch their Isa provider here.
15. The Lifetime Isa was launched in 2017. It aims to help people aged 18-39 save for their first home or for retirement. Savers can put £4,000 a year into the account, which gets a Government bonus of 25%. If you're not using the money to buy your first property, however, it can't be accessed until you reach age 60 - or you lose the Government bonus.
16. The Help to Buy Isa is no longer available. Data shows these popular accounts were used to help fund the purchase of more than 256,000 homes worth more than £44 billion in their short lifespan. Launched at the end of 2015 to help first-time buyers onto the property ladder, these accounts were closed to new applicants in November 2019. If you already have one you can keep saving into it until 2029.
17. You can’t have a joint Isa. The clue is in the name: “I” in Isa stands for “individual”. However, the accounts can pass to your spouse when you die and retail their tax-free benefits.
18. In 21 years, Isas have saved investors £35 billion in tax. According to Hargreaves Lansdown, if you had invested your full allowance at the start of each tax year since launch in the Legal & General UK Index Tracker, you would have saved £229,560, which would have grown to £411,193 by January 16, 2020.
19. The minimum amount required to open an Isa varies. It can range from as little as £1 up to tens of thousands of pounds depending on the provider.
20. The Innovative Finance Isa was launched in 2016. It allows people to earn tax-free interest on peer-to-peer (P2P) loans and some crowdfunding investments.
21. Some cash Isas allow you to access your money instantly. These are known as easy-access Isas and often have the lowest interest rates of all the accounts. Fixed-term accounts tie up your money for a set period and notice accounts allow you to access your money with prior notice, often four or six weeks.
