Today marks exactly a month until the doors shut on another tax year, and time is running out to use the remainder of your £15,240 Isa allowance.
Isa are accounts that allow you to save or invest and grow your money completely free of tax. And from 6 April, the amount you can tuck away into these accounts is getting a healthy boost – adults will be able to stash a stonking £20,000 into their Isas.
Despite ever-dwindling returns from cash Isas, four-fifths of the money placed into these accounts still goes into cash, according to the government. So, if you’re racing to fill up your allowance and are fed up with the measly rates available in the savings market, Which? Money is here to help.
Read our stress-free guide to using up your Isa allowance this tax year, and the options you have to boost your savings profits.
Plunging into stocks and shares Isas
A stocks and shares Isa is an account that allows you to purchase shares, bonds and funds and see your savings grow free of income, dividend and capital gains tax. They are riskier than a cash Isa as, while there’s potential to get a higher return, your investments can also fall in value.
You can split your Isa allowance between cash and stocks and shares, or hold it all in either type of Isa – and switch between the two as often as you like. However, you can only open one stocks and shares Isa per year.
Find your broker
The first step is to choose your stocks and shares Isa provider – the company through which you purchase your underlying investments. There are lots of options for investment brokers – online portals through which you can buy, sell and manage your investments – but you should consider several things before committing.
Check out our reviews of the top online investment brokers to help you find the one best-suited to you. We rate them on the quality of their customer service and the options they provide to their clients.
If you don’t feel comfortable choosing your own investments and would rather take professional financial advice, see our guide for finding an adviser.
How big is your portfolio?
If you’re just opening a new Isa now, then by definition your portfolio won’t be larger than £15,240 for this year, although you’ll be able to add £20,000 to it in the next tax year.
Take the size of your portfolio into consideration when you’re choosing which broker to use. Many charge an annual fee equal to a percentage of your assets, which can be better value for people with less than £100,000 invested.
Others charge a flat pounds-and-pence fee. These tend to work out cheaper for people with larger portfolios.
You’ll also want to think about what kind of investments you plan to hold, because brokers may charge you differently for holding funds or shares.
See our guide to broker charging here to find the best-value provider for your needs.
What about peer-to-peer lending?
A new Isa option has quietly come onto the scene for investors – one that for the first time lets you include peer-to-peer loans in the tax-free wrapper.
Peer-to-peer lending sees you loaning money to people or businesses who want to borrow it. Because you’re not going through a bank, and the people or businesses you lend to represent different levels of risk, peer-to-peer lending products currently offer higher interest rates than the cash savings market.
Using the ‘Innovative Finance Isa’
There is a tax-free option for peer-to-peer lending, known as the Innovative Finance Isa (Ifisa). However, there are only two companies currently offering one of these Isas, and are not the long-established firms in this market.
That means you’d be using one of the smaller lending sites. This isn’t necessarily a problem but may mean you taking on more risk than you might be comfortable with.
Remember, you can only open one Innovative Finance Isa per year, and most providers that are offering them only allow you to hold their own products within it, leading to a lack of diversification and potential extra risk, especially with smaller, more untested companies.