Recent economic troubles have made ordinary investors nervous about putting their money into the stock market. Overnight gains may be a thing of the past, but anyone in the UK considering investing can still save money if they’re in for the long haul and consider tax-free options such as ISAs. Such investment products can bring returns as long as you’re prepared to wait.
Investments in a Box
For UK investors, Individual Savings Accounts are effectively a ‘box’ into which a range of different investment products can be placed to help you save, tax-free. They include unit trusts, investment trusts, corporate and government bonds and individual stocks and shares.
You can pay a certain amount into an ISA for each year. The current limit is £11.520 for the 2013-4 tax year. You could choose to put all this money into a stocks and shares ISA or you could put up to £5760 into a cash product and put the rest into the stocks and shares account. You can pay in installments or as a lump sum.
The benefits mean you can protect any profits, rent, interest or dividends from tax, but you have to be prepared for your money to be invested for at least five years. With the economic troubles of the last five years, returns have not been as good. Another risk to bear in mind is the nature of the stock market. It goes down as well as up, meaning you may have to wait even longer to see a return on your investment. The level of risk is determined by what you choose to invest in. Any increase in value is free of capital gains tax.
There are restrictions, however. The allowance offered is annual and if it’s not all used in one year, then it can’t be carried forward. Investors can only have one account and are not allowed to split the allowance between two providers within a year. However, you can transfer your ISA to another provider or open a new one with the following year’s allowance.
It’s important to shop around to find the right product for you and find out what charges you will incur from the provider. If things go wrong, it is possible to make a complaint via the Financial Ombudsman.
When deciding whether this is for you, take a look at your interest payments in recent years. Although there is risk involved, such a product may be better investment in the longer term.