Many individuals in the United Kingdom may not be aware that they are potentially missing out on up to £20,000 annually in tax-free savings. According to a personal finance expert, approximately 78 per cent of adults in the UK do not possess an Individual Savings Account (ISA), resulting in an estimated 40 million people not capitalizing on this financial opportunity.
During a recent episode of BBC Morning Live, Laura Pomfret underscored the importance of holding an ISA, characterizing it as a “tax-free wrapper” for a savings account. This implies that individuals can deposit up to £20,000 per year into their ISA, with any interest earned from it being exempt from taxation.
Laura proceeded to detail the four different types of ISAs available. These include cash ISAs, which resemble standard savings accounts; stocks and shares ISAs, enabling individuals to invest in the stock market; Innovative Finance ISAs, tailored for peer-to-peer lending and crowdfunding platforms; and Lifetime ISAs, designed for purchasing a first home or retirement planning.
She also emphasized that opening an ISA is accessible to most individuals, requiring investors to be aged 18 or older. Moreover, it is feasible to open a junior ISA on behalf of a child.
Many viewers expressed curiosity about whether they were sacrificing “free cash” by lacking an ISA. Laura clarified that indeed, owning an ISA enables money to grow without the burden of taxation. In contrast, funds in a regular savings account would be subject to taxation once they surpass a certain threshold.
She also addressed the misconception that one needs a substantial amount of money to open an ISA, reassuring the audience that it is possible to open one with just £1. Laura highlighted that even in the current low-interest-rate environment, holding £200 in an ISA could still generate returns, essentially constituting “free money” while it remains there.
Importantly, funds held in an ISA with a reputable bank or building society are legally protected by the Financial Services Compensation Scheme for up to £85,000.
Ultimately, possessing an ISA can yield significant financial benefits and is accessible to most individuals. With the potential to save up to £20,000 tax-free each year, it is an opportunity that many may be overlooking. Therefore, it may be prudent to contemplate seizing this “free cash” and exploring the possibility of opening an ISA to bolster your savings.