An ISA (Individual Savings Account) is a tax-efficient way to save, or invest in stocks and shares. From this new tax year, the Government has increased the annual allowance you can put away in ISAs from £15,240 to £20,000.
 
Ben Arnold, investment writer at Schroders (worldwide independent asset manager) explains the impact of this higher allowance, in his article Saving for a £1m Isa: How the sums have changed – City A.M.

Key takeaway points:

• Ben shows how your ISA pot could grow to £1m in 23 years – now 4 years quicker with the higher annual allowance. (That’s if you used your full allowance every year and if investments continue to perform as well as they have done in recent decades.)

• Even though many people won’t be in a position to take advantage of their full ISA allowance each year, the earlier you start saving, the better.  The main appeal is your earnings are protected from being taxed.  For Cash ISAs, all savings interest is tax-free; for Stocks and Shares ISAs, investors don’t have to pay tax on dividends or capital gains.

• And If you’re thinking of investing, the Stocks & Shares ISA is now even more attractive, since the Government plans to cut the dividend allowance from £5,000 to £2,000 from April 2018. (This is the amount you can earn in dividends before you start paying tax on them). But ISA earnings remain tax-free.

• If you can leave your money untouched for 5 years or more, Ben suggests you consider a Stocks & Shares ISA, and points out that you can open one with regular investments of just £25. For shorter timeframes, he suggests it might be better to put savings into a Cash ISA.

 
Note: The value of investments can go down as well as up, and investors may not get back the amounts originally invested.

Read the full article here.

Click here for our introduction to ISAs (including the new Lifetime ISA for the under 40’s), or see the Full ISA Guide from Money Saving Expert.