People have lots of questions about ISAs, so we thought it would be helpful to give you answers to the 10 most searched questions about ISAs.
1. What is an ISA?
ISA stands for Individual Savings Account. It is a type of savings or investment account available in the UK that lets you save or invest money without having to pay income tax, capital gains tax, or dividend tax on the returns earned within the account. Beanstalk offers a stocks & shares ISA with two funds available to invest in.
2. What types of ISAs available?
There are four different types of ISAs available: cash ISAs, stocks & shares ISAs, Innovative Finance ISAs and Lifetime ISAs. Each type has its own rules and benefits, catering to different savings and investment needs. We recommend doing your research before opening an account to make sure you’re choosing the best type for you.
3. How much can I contribute to an ISA?
The government sets a limit on how much in total you can contribute to ISAs during each tax year. For the tax year 2023/24, the overall annual contribution limit is £20,000. You can split your contributions between ISAs of different types as long as overall you do not contribute more than £20,000.
4. Can I have multiple ISAs?
Yes, you can have multiple ISAs, but you can only contribute to one of each type of ISA in any given tax year.
5. Can I transfer my ISA to another provider?
Yes, you can transfer your ISA from one provider to another. This is known as an ISA transfer. You can transfer both within or across different types of ISA, and it allows you to switch providers while retaining the tax benefits and maintaining your contributions within the ISA wrapper. Beanstalk makes it very simple to transfer your ISA, you can start the process on the app.
6. Can I withdraw money from an ISA?
Yes, you can normally withdraw money from an ISA although different providers may have different rules. It's important to consider any withdrawal restrictions or penalties that may apply, for example for fixed-term Cash ISAs or Innovative finance ISAs.
7. Are ISAs only for individuals? Can I open a joint ISA?
ISAs are for individual savers and investors and Joint ISAs are not available.
8. What is the deadline for contributing to an ISA?
The deadline for contributing to an ISA is the end of the tax year, which is April 5th. To make the most of your annual ISA allowance, which is £20,000 in 2023/24, you may wish to contribute before the deadline to maximise your tax-efficient savings or investments.
9. Are ISAs available outside the UK?
ISAs are specific to the United Kingdom and are not available in other countries. However, other countries may offer similar tax-advantaged savings or investment accounts that serve a similar purpose.
10. Are ISAs risk-free?
The level of risk associated with an ISA depends on the type of ISA you choose. Cash ISAs, which hold savings in cash or cash-equivalent instruments, are generally considered lower risk. On the other hand, stocks & shares ISAs carry a higher level of risk as they invest in the stock market and other investment products.
Although cash ISAs give certainty (you know that the savings will grow by the interest rate), one thing to think about is the effect of the inflation rate on the value of your savings. If inflation (the general increase in cost each year of goods and services) is higher than the interest rate, then despite the fact your savings have grown, you will be able to buy less with the money than you could at the start.
Unlike saving where your returns are dependent on the interest rate, returns from investing depend on how well the investments do. There is of course a risk that you could end up with less than you put in but evidence suggests that, over the long term, stocks and shares tend to outperform cash as the returns can compensate for the ups and downs. For example, the Barclays Equity Gilt Study in 2019 showed that over 50 years, UK shares would have returned 4.7% whereas cash would have returned 1.1%. In some years cash would have significantly outperformed equities but over the longer term it was the other way around.