Sometimes, you have to save a little to
gain a lot. When we have money in our pockets, it can be all too easy to feel
it burning a hole and be tempted to spend it straight away, even though we know
it might not be in our long term interests. By contrast, making ourselves save
money can take willpower – but the results should be more than worth it in the
end.
This is one of the big reasons the stocks and shares ISA has
grown so much in popularity: many people are drawn by the ability to save a
significant sum of money each year absolutely tax free, meaning it is possible to
maximise the money you put in and make your savings work as hard as they
possibly can. These ISAs were first introduced more than a decade ago to
replace previous tax-incentive saving schemes, with the aim of encouraging the
country to save more.
Since then, their popularity has exploded,
particularly among younger people. One of the reasons tax efficient savings
work so well for young people is that they can be extremely useful when saving
for a mortgage deposit – this is something that many of us do at some point in
our lives, and it can often be a challenge to scrape together the cash. This
means that any help we can take advantage of, we definitely should.
The way a share ISA works is by investing your money in stocks and shares.
Depending on the kind of ISA you have, this could be invested in all the
companies listed on the FTSE all-share index, in companies that have a lower
than average carbon footprint, or in government gilts. If the shares you have
invested in make a profit, so do you, which you receive in the form of
dividends.
This can be a good way to get a good return
on your money without having to work very hard – and if you’re trying to be
frugal, this is sure to be very welcome! However, it is worth noting the risk
associated with these ISAs, due to the fact that the value of shares can go
down as well as up. Over the longer term, however, there is a good chance that
your money will grow and if you choose your shares ISA wisely, you’ll have an
even better chance of this.
In the first seven years of ISAs being on
the market, the number of people aged under 25 who signed up for one went up by
a massive 88%, perhaps highlighting the attractiveness of the tax efficient
savings for the younger generation. The ISA tax
allowance stands in contrast to other savings products, which usually
charge you tax on your interest at the standard rate – which isn’t that great
for anyone on a frugality drive or for anyone who is simply trying to make
their money work as hard as possible.
Overall, shares ISAs can be a very useful
product if you are looking to make the most of your savings and want to limit
your tax liabilities. They are particularly useful if you are saving for
something significant, so anyone looking to buy a house any time soon would
definitely be wise to see what’s available.
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