The Best ISA Savings Accounts For Your Financial Goals

We’re six weeks or so into a new tax year so now is the perfect time to think about ISA savings accounts so you can maximise the year’s allowance.

ISA’s are savings accounts, but any money you earn from them is tax free. Although there are limits on how much you can save tax free each year. Other savings accounts are subject to tax when the interest exceeds £1,000. Although I can only dream of earning that much interest.

Each tax year runs from 6th April to 5th April, and everyone gets a £20,000 ISA allowance. That allowance is for all of your ISA’s combined, not per ISA. Each new tax year a new allowance comes in s you can use the allowance, or lose it.

Here are the best types of ISA savings accounts depending on your financial goals.

Emergency funds or shorter term savings

Cash ISAs are more like traditional cash savings accounts where you can earn interest on your money. Although at the moment interest rates aren’t great.

A lot of cash ISA’s are easily accessible and you can take money out anytime you want. But you can also get accounts where your money is tied in for a certain amount of time and you only get the interest agreed if you don’t access it during this time.

Cash ISA’s are fine for short-term savings such as for a holiday, or a wedding. And they’re great for emergency funds where you want no risk and you want to be able to access it straight away if you needed to.

ISA savings accounts for your first home

If you are under 40 years of age and saving for your first home then make sure to take advantage of a Lifetime ISA (LISA).

These ISA savings accounts come with an added bonus of 25% from the government with a maximum allowance of £4,000 a year. This means if you saved the maximum for 5 years you’d have saved £20,000 and you’d have a free £5,000 from the government.

There are some conditions to using your lifetime ISA savings such as:

• You’re a first time buyer and have never bought a property before in the UK or anywhere around the world
• The property costs £450,000 or less
• You buy the property at least 12 months after you made your first payment into your lifetime ISA
• You’re buying with a mortgage
• You use a solicitor or conveyancer to act for you in the purchase

When you’re in the application process you just need to make sure your solicitor and mortgage advisor know you’re using a lifetime ISA.

While you have a few different ISA savings accounts you can only have one Lifetime ISA per person. If you withdraw the money from a LISA for any reason other than your first home (or retirement) then you will lose the bonus and may be charged a penalty.

Saving for retirement

You can also open a lifetime ISA to save towards retirement and make the most of the government bonus.

You can add into the lifetime ISA until you’re 50. And then it stays there earning interest until you turn 60 when you can take it out. When the big 60 hits you can withdraw the whole amount at once or take money out as and when you want to. What you actually use the money for is up t0 you, but it’s designed to be an addition to your pension to help you live when you’re older/ you retire.

ISA savings accounts to watch your money grow

With interest rates so low and inflation so high your savings can reduce in value over time. Unless the interest rate you’re getting is higher than the rate of inflation (cost of living) then your money will be worth less in the future.

If you’re saving longer- term, or are willing to put a little bit of risk in then a Stocks and Shares ISA may be right for you. You need at least five years to save, but ideally 10 or more. Your money is invested and put to work in the stock market. Most S&S ISA’s you open will give you options around how much risk you’re willing to take so you can choose this to minimise any potential lose. But if you’re in it for the long term there’s more chance of getting a good return as your money will be able to ride out any loses. Generally they say investments can earn 8% or more depending on performance etc.

Anyone over the age of 16 can have a Stocks and Shares ISA, and you can get junior versions as well if you’re saving for your kids. If you’re not sure where to start check out Compare the Platform to compare providers.

Saving for children

You can open ISA savings accounts for kids as long-term savings accounts.

I’ve done a whole post on Junior ISA’s including what they are, putting money in and taking it out, and the different types of accounts so check that out if you’re saving for a child.

Do you have any ISA savings accounts?

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