You may have heard the word ‘Investment ISA’ being thrown around quite a lot especially when it comes to discussions around beating the inflation or having a more robust future pension plan, but fact is not a lot of people are actually well aware of what an Investment ISA is all about.
Well today, we are going to demystify Investment ISAs for you by going through why they are important for your financial freedom and then taking a look at the different investment opportunities present in there so that you can find an option where the risk vs reward ratio is just right for you!
What are Investment ISAs and Why Should You Care About Them?
Pretty much everyone uses an ISA, otherwise known as an Individual Savings Account in order to save their money at their particular bank of choice. Now traditionally the interest scheme on these savings accounts are pretty low and when you factor in the rising rate of inflation you can stand to lose more than you can actually gain!
Here is where an Investment ISA steps in, through either cash or stocks and shares, these ISA accounts make sure that the amount you deposit with them is invested into vested options so that at the end of the day your money works just as hard as you are instead of just lying idle in your bank account, So if you are looking to increase your bank balance over a long term period, I would highly suggest going for one and if you are interested, you can learn more about stocks and share ISA from trusted sources like MoneyFarm.
The Different Types of Investment ISAs
So as we touched upon earlier we have two main options when it comes to ISAs – Cash and Stocks and Shares. Now when it comes to stocks and shares, there are three separate subcategories in there that we shall get into later but for now, let’s take a deep dive into Cash ISAs.
- Cash ISAs
Now Cash ISAs are very similar to your normal savings account in the way that you maintain the liquidity of your account and can cash out at any time. However since this is an investment ISA, you do earn higher profit margins than a standard savings account.
So who are Cash ISAs good for? Well, if you are looking for a low risk ISA to start off initially then Cash ISAs are the perfect ones to ease yourself into. The lower risk of course comes with the fact that the gains aren’t as high as you could have with a stocks and share option, but the ability to liquidate at a moment’s notice makes up for that. In general, you can choose between two types of Cash ISAs – a quick access or a fixed deposit type of account, as the names themselves are pretty self explanatory, I wouldn’t go into much more details regarding them here!
- Stocks and Share ISAs
So here there are three main options each of which we have explored in a bit of detail down below:
- Investing into the Share Market: This is dependent on the fluctuations of the share market so the amount of money you can gain or loose here is significantly higher than a Cash ISA. However, don’t be afraid if you’re not aware of the ins and outs of the stock market, a financial advisor is present and generally he is the one who will look after your funds and decide where best to invest them
- Innovative Finance ISA: With this type of ISA you can lend out your money as a loan to different companies in a tax free environment. The caveat here is that you do not see major gains unless you wait till the loan period matures!
- Help to Buy and Lifetime ISAs: These are long term investment options where the ISA on maturity sets you up so that you can buy a house or otherwise just come into a large sum of money at the time of your retirement. The commitment here is time and while the returns are big, the penalties of cashing in too early is pretty large as well..
And with that we have covered all that there is to know about the various types of ISAs out there. Now depending on your own financial situation and the amount of money you’re looking to make from your investments, you can opt for any one of these options!