ISAs turn 20 later this week, but the product that was once designed to simplify saving has morphed into a whole new beast, with numerous different types of ISA now available. But does this mean they're now too complex, and perhaps more importantly, are there too many of them?
ISAs were first launched on 6 April 1999. At that time, the maximum that could be saved into an ISA was £7,000, though £4,000 of that had to be in stocks and shares, leaving a £3,000 cash ISA allowance. This meant there were two basic types of ISA available – cash ISAs and stocks and shares ISAs.
Since then, the number of options available – much like the ISA allowance itself – has grown rapidly, particularly in the last few years. It's now possible to save up to £20,000 in the current tax year (and in 2019/20), the value of which can be split between several different forms of ISA, but the amount you're able to save in different accounts can differ. Let's take a look at a few of the options in turn (note that we'll be focusing on adult ISAs, rather than the Junior ISA variety):
Yet for some, the difficulty arises in knowing which type (or types) of ISA to choose – do they want to use an ISA to save for their first home, for example, in which case do they want to save in cash or stocks and shares? If the former, and they opt for a Help to Buy ISA, are they comfortable with the fact that they won't be able to save into another cash ISA during the same tax year? This is where the confusion can sometimes set in, and it may be compounded by the fact that providers seem to be launching even more savings products under the tax-free banner.
If you look for an ISA using a typical search engine, you may find some types that seem completely unfamiliar; some providers are touting Property ISAs, for example, and another is promoting a so-called Brexit ISA. However, neither of these are technically different types of ISA product; they offer the same tax-free wrapper, just with a different spin that the provider wants to promote.
Yet their attempt to stand out from the crowd could mean they end up alienating consumers even more, many of whom may just want a simple savings product that shields their money from tax. In this case, it could arguably be best to go back to basics, saving in either a cash or stocks and shares ISA depending on your preference, though of course making the most of the 25% Government bonus if you're serious about saving for your first home or retirement.
It may still seem a bit like a minefield, however, so if you're in any doubt, make sure to take a look at our ISA guides for more insight into these tax-free savings vehicles, and you may even want to seek financial advice – particularly if you're considering a stocks and shares ISA – so you can be sure you make the decision that's right for you.
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