Maximising Your Tax-Free Benefits with the Best ISA Rates for over 50s

Individual savings accounts, or ISAs, are an excellent option for anyone wanting to boost savings. They work in almost the same way as a regular savings account, with the exception that any interest you earn is tax free.

You won’t pay any income tax on the interest you earn. You also won’t pay any capital gains tax on your interest earnings. If your goal is to increase your retirement savings, an ISA could be a great option for you.

Anyone over the age of 16 can open an ISA. However, you’ll find some of the best ISA rates for over 50s are often more attractive than those offered for younger account holders.

Cash ISA or Stocks and Shares ISA

Everyone in the UK has an ISA allowance each year of up to £10,680. However, if you’re depositing funds into a Cash ISA you are limited to a maximum of £5,340, while the remainder of your annual allocation can be invested into a stocks and shares ISA.

Keep in mind that there will be an element of risk with a Stocks and Shares ISA as compared to a Cash ISA. The interest you earn on a Cash ISA may give you a lower return initially, but it’s still a guaranteed return.

By comparison, the returns offered on Stocks and Shares ISAs are highly dependent on fluctuations in the share market. It’s possible the value of the stocks and shares your ISA has invested in could decrease. Of course, if the value of those equities increases, it’s also possible your returns could end up better than those you received on your Cash ISA. It’s important to determine your level of risk aversion and risk tolerance before choosing an ISA to suit your needs.

Deposit Your Allocation Early

If you have the funds available, deposit your entire annual tax-free allocation as early as possible. You’ll earn more interest overall by depositing a lump sum early than you would by depositing smaller amounts throughout the year.

If you wish to continue saving over and above the annual tax-free allocation limit, you can always open a regular savings account and keep your money there. The interest you earn won’t be tax-free in a regular savings account, but you may be able to transfer your cash into an ISA as a lump sum the following year to make the most of any extra money you’ve saved.

Savings Account or Cash ISA?

If you’re comparing the interest rates available, you may notice that some savings accounts offer higher rates than those offered on Cash ISAs. While you may earn a little more interest by putting your money in a regular savings account, you aren’t getting the tax benefits.

By comparison, putting your money into a Cash ISA allows you to take advantage of not paying any tax on the interest you earn. The marginally higher interest rate on a regular savings account may earn you more initially, but don’t forget you’ll be paying tax on any interest earnings.

You can still top up your savings using a regular savings account. Just be sure you’re maximising the tax-free interest you can earn whenever possible.

Regular Contributions

Not everyone has the available cash to deposit the entire annual allocation in a lump sum right away. If you’re still building up your savings and want to take advantage of tax-free interest earnings, you can set up an automated savings plan.

Many banks will let you arrange an electronic direct credit from your regular bank account to your cash ISA. You can nominate how much you want to pay into your savings each week or fortnight to top up your savings balance over time.

If you’re serious about really taking advantage of the best ISA rates for over 50s, you need to spend some time comparing the potential amount of interest you can earn on your savings. Shop around and make sure you’re getting a competitive interest rate on your savings and see if there are ways to maximise the interest you earn on your cash. Work out the tax-free component and compare the different accounts available before making your decision.

If You Had Expert Knowledge, Could You Pick the Best Shares to Buy and Make a Killing?

Each year, mutual funds tend to beat the stock market by narrower and narrower margins. If the stock picking management team behind a mutual fund does manage to put in a strong showing one year, it is nearly never able to repeat the trick a second time. Most mutual funds actually manage to underperform the market – their investors end up with lower profits than individual investors get simply by picking the best shares to buy from popular indexes like the FTSE. With almost nothing to show other than undependable performance, mutual funds usually still do charge very high management fees that tend to eat into whatever gains investors make.

What should you, the average investor, do, then? Should you pay a mutual fund a large management fee to pick the best shares to buy for you or should you pick the shares yourself by looking at a popular index and save on the management fees?

The “efficient stock market” theory proposes that beating the markets is impossible

If you’ve done a bit of reading on stock market behavior, you have possibly heard of something called the efficient market hypothesis – an idea floated in the 60s. The hypothesis proposes that investors always act rationally and pick stocks to invest based on the best information available. Since the same information is available to all investors, the market is supposed to arrange itself over time to give the best companies top pricing and the least efficient ones, the cheapest pricing.

This theory calls into question the idea that experts with special knowledge of the markets can pick winners. Since investors do indulge in buying and selling that constantly rearranges the market, the theory would imply that stocks in the market today are already priced the way they should be. There can be no predicting what stocks will go up or down as they are already where they should be.

The reality of the markets is different, though.

How markets act in reality

In practice, many investors base their decisions on insufficient, incorrect or outdated information. Many decide on the best shares to buy based on an investment style rather than purely logical methods. Some have an emotional attachment to stocks from a certain part of the country or a certain industry. Others base their decisions on rumors from the grapevine.

One reason why investors choose investment styles and gut instinct over real information is that there can be too much of it. Investment houses need to put entire departments of highly skilled staff with access to multiple streams of data to process everything necessary to make purely rational decisions about the best shares to buy. Individual investors and small brokerage businesses simply don’t have the time and manpower necessary for such data processing. In the US, one of the central aims of the Sarbanes-Oxley Act of 2002 was to help investors gain better access to information in a way that they could process.

Can you actually pick good shares to buy better than other investors?

Stock picking – the process of studying the market and using insight, statistics and knowledge to find winning stocks better than other investors – worked better when the stock markets were healthier. These days, well-trained stock pickers at major mutual funds fail to beat the results achieved by simple individual investors who simply put their money into stocks featured in the major indexes.

Mutual funds that fail to beat the markets, though, don’t actually perform worse than individual investors. Their management costs are simply so high that they end up with little profit. If you set the costs aside, most mutual funds do manage to beat the major indexes by at least a slim margin. People continue to invest in them, though, because each year, a few funds manage to beat the indexes by a healthy margin. Investors always hope that the fund that they choose may see such luck. Since the winning funds of one year end up losing their touch the following year, it can be very difficult knowing which one to pick.

Understanding the Basics of Stocks and Shares Individual Savings Accounts

Individual Savings Accounts (ISAs) are a very popular means of saving and investing money in the United Kingdom. In fact, thousands and thousands of UK citizens over the age of eighteen make hundreds of dollars off their ISA accounts each year.

The primary reason that ISA accounts are so very effective at earning money is that they are all but tax-free. Basically, any money earned from interest or investments from the accounts is not taxed at the end of a tax year.

While cash ISAs are basically just savings accounts that are tax-free, stocks and shares ISAs, the type focused upon here, are more along the lines of an investment that is tax-efficient. A stocks and shares ISA gives you the opportunity to invest your money in different areas, such as open-ended investment companies (OEICs), unit trusts, government bonds, and corporate bonds, with the highest level of tax efficiency possible.

If you are interested in investing in a stocks and shares ISA, there are several things that you must first know. Below is a discussion on the basics of these ISA accounts. Thoroughly understanding these basics will allow you to effectively begin looking at the very best ISAs for you.

Risk of Stocks and Shares ISAs

Before moving on to the complexities of stocks and shares ISAs, it is important to point out their primary difference from cash ISAs: risk.

Simply put, stocks and shares ISAs are much riskier than their cash counterparts. This is largely because investments, unlike set interest rates, can go either up or down. If you don’t make a solid investment, you might lose money rather than gain money. However risky stocks and shares ISAs may be the potential for a high payoff is by and far greater than with a cash ISA.

How Much Can You Invest?

One of the first questions that many people have regarding stocks and shares ISAs is how much you can invest.

You are allowed to invest up to £11,520 per tax year in ISAs in general. This is between both the stocks and shares version and the cash version. You may decide to invest this all in a stocks and shares ISA or split the allowance up between the two, putting up to half of it into a cash ISA.

Many people decide to split their allowance straight down the middle. They do this by investing £5,760 in a cash ISA and the other £5,760 in a stocks and shares ISA. This method of saving/investing has the benefit of being both safe and rewarding.

What Are the Tax Benefits of a Stocks and Shares ISA?

The best ISAs have solid tax benefits. In fact, these tax advantages are one of the main reasons to invest in a stocks and shares ISA in the first place.

It is important to point out that using your ISA for a share-based investment, like an OEIC, will most likely only give you a tax break if you actually make money from the investments. In other words, an ISA will benefit you if you would normally be required to pay capital gains taxes on the investments.

With a stocks and shares ISA, you have an allowance of £10,900 for capital gains. Make less than this off of an ISA investment and you won’t have to pay any taxes on it at all.

Investing in investments with dividends is a different story. Normally, dividends investments in the United Kingdom require you to pay a 32.5pc tax per year (or 37.5pc for additional rate taxpayers). Invest in dividends through an ISA and you will only have to pay 10% on these dividends.

Are There Any Related Charges?

It is essential to note that there are a handful of related charges when you invest in a stocks and shares ISA.

Chief among these is commission that is used to pay financial advisors. This commission, however, has been banned in many cases. ISA charges might also include fees to cover admin costs and fees to make payments to fund managers. Simply put, charges for ISA accounts vary depending on your individual investments, just like they would for an investment outside of an ISA.

There is simply no denying that investing in an Individual Savings Account, whether a stocks and shares ISA or a cash ISA, is an excellent way to earn back additional money.

Before making any moves, it is essential that you understand the nature of the account you wish to put your hard-earned money into. The information regarding stocks and shares ISAs discussed above will help you find the best ISAs possible and will ensure that your money is used as effectively as possible.