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An ISA for every life stage

4 minute read

The ISA that’s right for you in your 20s may be different from one that’s suitable in your 50s. Here, we consider your ISA options to help you decide which kind of ISA to choose.

Who's it for? All Investors

The value of investments can fall as well as rise and you could get back less than you invest. If you're not sure about investing, seek professional independent advice.

What you’ll learn:

  • Which ISA account might suit you.
  • How much you can invest.
  • How you can open an investment ISA.

If you’re looking to save or invest into an ISA, there are plenty of different options to choose from.

An ISA won’t be the right choice for everyone – it’ll depend on your personal circumstances. However, if you are keen to invest in an ISA, the best choice for you may vary depending on your age, any savings you already have, your approach to risk, and how long you want to tie up your money for.

Is an ISA right for you?

As long as the rules don’t change, ISAs will protect your assets from tax over the long-term, enabling them to grow free of income tax, tax on dividends and Capital Gains Tax (CGT).

This tax year (2019/20) you can slot away up to £20,000 in ISAs.

However, if you invest outside an ISA, bear in mind that you may not pay tax on investment returns anyway. You won’t pay tax on profits unless they are above the annual CGT allowance, which is £12,000 in the 2019-20 tax year.

Also, the first £2,000 of dividends earned from investments held outside an investment ISA are tax-free. This is known as the dividend allowance. If you exceed this threshold, you will be taxed. Outside an ISA, the personal savings allowance (PSA) gives basic-rate taxpayers a £1,000 tax-free allowance on interest from savings income a year; higher-rate taxpayers have a £500 PSA, while additional rate taxpayers aren’t entitled to this allowance.

Here’s our rundown of the various ISA options.

Under-18s

Young savers can open a cash ISA from the age of 16, or an investment (stocks and shares) ISA once they reach 18.

Parents wanting to save or invest on behalf of children who are younger than this have the option of a Junior ISA, which can be accessed once the child reaches 18. You can save up to £4,368 into a Junior ISA in the 2019/20 tax year.

As long as you’re prepared to accept the risk that they might fall in value, then over the long-term, an investment Junior ISA may provide the potential for greater returns than a cash Junior ISA. Remember, though, that investments can fall in value as well as rise, which means there's a risk of getting back less than you put in. However, as the money can be left to grow for 18 years, this should hopefully allow plenty of time to ride out any stock market volatility along the way.

Your 20s and 30s

These years are often filled with important milestones, such as buying your first home, getting married, or starting a family.

You may need to get your hands on your cash in a couple of years, in which case a cash savings account is likely to be your best bet. Most cash ISAs give you the flexibility to take out your money whenever you need to.

It may also be a time when your finances are stretched, particularly if you’re still paying off student debts, but even if you can’t afford to put away a big lump sum, saving smaller amounts regularly instead should hopefully enable you to build a decent savings pot over the years.

Saving regularly can also help you to establish a savings habit, which may pay off in the future.

If you’re saving over a timeframe of at least five years or longer, you may want to consider investing. Although investing is higher risk and you might get back less than you put in, there’s also the potential for greater returns over the long-term. If you’re unsure whether investing is right for you, seek professional financial advice.

A good starting point if you’re exploring where to invest is to look at the Barclays Funds List. Based on our research, we believe the funds on this list may have the potential to generate consistent returns over the medium to long term (five years or more), although equally they may not do this and you could get back less than you invest.

Please remember that the Barclays Funds List isn’t an exhaustive list – there are plenty of other funds that may actually be more suitable for you. We’re not recommending any of these funds, so it’s up to you decide if any of them are right for you.

If you’re under 40, another option is a Lifetime ISA. This is targeted at anyone saving towards a first home, or retirement, or both. You can pay up to £4,000 into a Lifetime ISA each tax year, and the Government will boost any contributions you make by 25%.

You can save into a LISA from age 18 to 50, with the maximum bonus amounting to £32,000 on £128,000 saved over the years. Remember that if you want to save into a LISA, this must be opened before you reach the age of 40.

Your 40s and 50s

If you’ve yet to open an ISA, or you’re saving solely in cash accounts, it’s not too late to consider investing for long-term growth. That’s provided you’re comfortable with the uncertainty and risk of loss that comes with being an investor, and you can afford to tie up your savings for at least five years.

If you already have one or more investment ISAs, make sure you review how they’re performing so that you can be certain you’re on track to achieve your financial goals.

As you head towards retirement, you may want to consider shifting some of your money into lower-risk investments within an investment ISA, or your pension pot. This may be done, for example, by increasing your bond and gilt holdings. Again, seek professional financial advice if you’re not sure where to invest.

Your 60s and 70s

You don’t stop getting an ISA allowance when you hang up your work boots.

During retirement, you can still use ISAs to maintain a rainy-day cash fund, for example, or invest your money to provide you with an income to supplement your pension. You may, for example, decide to choose funds that focus on companies paying a sustainable and growing dividend – a slice of company profits to investors.

Ultimately, the type of ISA account you go for will depend on what you’re investing for, and your other assets.

Remember that ISA tax rules may change in the future or the ISA benefits may be withdrawn.

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