Michael Carrick

Use it or Lose it! A guide to ISAs in 2023 by Michael Carrick

16 Mar 2023

With April 2023 on the horizon, it’s that time of year again when investors look to maximize their ISAs. Or, look to set up their very first Individual Savings Account. Although these tax-efficient models are much simpler than many other savings accounts, there are a few considerations for understanding the benefits you’re entitled to. 

A Simple Guide to ISAs 

What is an ISA?

An ISA – or an Individual Savings Account – is a specific method of saving that comes with tax benefits. ISAs come in two forms, cash and investment. They can enable savers to earn interest on amounts up to £20,000 in any financial year and you can combine cash and investments.

ISAs are generally more flexible than higher-income savings accounts. They allow money to be withdrawn throughout the year, split across two-or-more ISAs or transferred between providers.

Considerations when choosing an ISA

Different types of ISA will benefit different types of savers. It’s worth doing homework and shopping around before committing to a provider. Consider interest rates and any long-term projections based on individual banking trends. Remember that the best rate now won’t necessarily be the best rate 12 months down the line.

Although ISAs have a lot of flexibility, certain providers will be less flexible than others. You may find the highest interest rates being offered by those that have fixed withdrawal periods. If you always want access to your money, you’ll need to make sure that your chosen provider allows this. However, you’ll likely earn a smaller interest rate as a result.

Beyond a cash ISA

If you’re looking beyond a simple cash ISA and want a savings account, consider an investment ISA. These are often referred to as stocks and shares ISAs, and come in two main forms:

  • Self-select ISAs

Self-select ISAs put the ball in the investor’s court. It’s totally up to you to decide on the stocks, shares or bonds that your money will go towards. If you like staying in control of your investment choices, these are the ISA for you.

Those whose stocks perform well have the bonus of not being taxed on their earnings.

As with any investment, the stock market can be volatile and carries risk. Educate yourself or discuss your plans with an independent financial expert like me!

  • Collective investments

A less-risky investment will spread your money across multiple shares or stocks over that of a single company. Such an approach is often safer, but any returns are likely smaller.

Investors can, of course, diversify their stock by making their own decisions. For example, choosing multiple companies to invest in rather than just one. An alternative is to take a ready-made bundle.

These are a great time-saver but give an investor less control over the companies they’ve chosen to back. Such a bundle may include a group of companies within the same industry or be spread across several sectors.

Tax considerations

ISAs are well known for being ‘tax-efficient’. But, your choice of investments and current tax bracket can make a big difference to the level of benefit generated. Upon their creation in 1999, ISAs were very much promoted as tax-free investments. That remains true today, but ISAs have a few grey areas worth being aware of.

Be aware of the ‘small-print’ points of difference that make it essential to consider both cash and investment ISAs before parting with any money.

Use it or lose it

Perhaps the most important is to remember that all ISAs work on a year-to-year basis. The tax year runs from April to April, and no tax-free allowance can be carried over into the next year. Mark the April 5th on your calendar and maximise your savings as much as possible before the day arrives.

With all that in mind, happy saving! For any questions or concerns about the ISA process or your potential portfolio in detail, get in touch today!


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