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Yahoo
3 hours ago
- Business
- Yahoo
How much do I need to save to build a £100,000 ISA pot?
Whether you are saving for retirement, looking at long-term wealth building or have a specific goal in mind for the future, Individual Savings Accounts (Isas) can be a great tool to help you achieve it. Gains made from money in them - interest earned, dividends or capital gains - are tax free and under current regulations, each person can save up to £20,000 in them every single tax year. What's more, the earlier you start, the greater your chances of hitting your long-term targets, as time can be the great multiplier when it comes to your money thanks to the effect of compounding. Therefore, even if you don't get anywhere near using up your £20,000 allowance, you can still set yourself lofty targets over time - such as a milestone figure of reaching £100,000. There are other types of Isa available, but here we'll look at cash and investing Isas. The most-used Isa type is the cash Isa. Right now with the interest rate on cash Isas somewhere around a competitive 4.5 per cent mark, you can not only earn a reasonable amount on your money, but you can also protect it from inflation, which is running at 3.5 per cent and not projected to drop below 3 per cent until next year at least. However, interest rates fluctuate a lot over time, meaning you may need to regularly check you are earning the best amount on your money. How long it takes to reach £100,000 depends on multiple factors, such as your initial deposit amount, ongoing contributions and your interest rate. : £2,000 lump sum to start and £250 saved per month, at an average of 3.5% interest. In this scenario, you would cross the £100,000 mark during your 22nd year of saving regularly. At that point you'd have saved £68,000 of your own money, earning an additional £35,000 in compounded interest. : No initial deposit but £400 a month saved at average 3.5% interest. Some people may have no lump sum to get started with, but have perhaps taken a new job or a pay rise - so bigger monthly savings are possible. In this scenario, year 16 would be the milestone - with more than £25,000 of the total £102,000 in the pot being interest earned, showing the importance of consistency. While the above examples use a flat 3.5 per cent interest rate for cash, there's no way of knowing what the rate will be a year or a decade from now - it could be far higher or lower, as could inflation. There may be a better way of reaching your target figure than purely cash, however: a stocks and shares Isa, sometimes called an investing Isa. Here, your money can be put into the stock market in search of better returns - over longer periods of time, investing has historically always outperformed cash. If it's not your area of expertise, there are plenty of automated options where you can simply select your risk tolerance or other preferences and let your money be allocated for you accordingly. In investing, there is no certainty though - cash savings remain as cash savings and are easily predictable. A typical World Index Fund has returned between 10 and 11 per cent annually over the last decade, while the FTSE 100 (the UK's biggest 100 listed companies) generated a 6.3 per cent annualised return over the 20 years from 2003 to 2023, including dividends. Neither are guarantees of the future, but many experts suggest over the long term, an annual return of 6-8 per cent is possible for investors - which over many years can have a significant difference when compared to cash saving rates. : £2,000 lump sum to start and £250 invested per month, with an annual 6.5 per cent return. After 18 years of investing at this rate you'd hit the £100,000 mark - and your own money would only make up half of this total. £56,000 would have been saved through your deposits, with just over £50,000 gains giving a total of £106,866. By year 20, your total gains would outstrip your own deposits and you'd have £127,000 all told. : No initial deposit but £400 a month invested, with an annual 6.5 per cent return. More money going in each month means the initial pot builds quicker, so £100,000 is reached by year 14. However, as that money has had less time to grow and compound, £67,200 is of your deposits compared to just under £41,000 in earnings. The tipping point for bigger gains comes in year 20 - by which time the total pot would be £192,000. The lesson remains: starting sooner rather than later is key, as time plays the biggest role in compounding money, even if you start with small amounts. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
The Independent
02-05-2025
- Business
- The Independent
Why everyone should open an ISA, according to financial experts
Navigating the world of personal finance can often feel overwhelming. However, Individual Savings Accounts (ISAs) offer a straightforward way to save and grow your money tax-free. With a surge in popularity, evidenced by the £3.5 billion deposited into cash ISAs this February alone (according to Bank of England data), understanding the nuances of these accounts is more crucial than ever. We spoke with finance experts to demystify ISAs, outlining who they're for and the advantages of each type. What is an ISA? Can you have more than one ISA? Rachel Springall, finance expert at MoneyFacts explains that an ISA offers savers the possibility to put away money that doesn't get taxed. You can have multiple ISAs. 'That draws people to ISAs as they can invest up to £20,000 a year which is tax free. If you do withdraw that money however, it will become taxable,' Springall says. 'Therefore if people want to move around their ISA, they will need to transfer it to another one. Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, emphasises that it's important people are thinking about making their savings and investments tax efficient to ensure they can hold on to as much of their earnings as possible. She also adds it is worth noting that if the full allowance of an ISA isn't used within the 12 month period, you then lose it and a fresh one starts for the next year. Although Springall says that ISAs can encourage saving habits, they may not be for everyone. 'It is important to remember that ISAs were introduced 25 years ago and they aren't the suitable choice for everyone. It really depends on who you are, how old you are and what you're saving for,' Springall adds. General cash ISAs 'Cash ISAs are saving accounts where you don't pay tax,' Haine explains. 'Similar to a regular savings account, you can have an easy access or fixed-rate option where cash can be locked away for a set period. You can open one through your bank or your investment platform. I would advise people to shop around for the best rate they want and then allow your cash savings to grow over time. 'Generally these are better for those who are saving money for a short-term time horizon or who need access to the money faster.' 'A stocks and shares ISA allows savers to invest in shares, funds, investment trusts and bonds with no tax on any gains or income from assets held in the account,' Haine explains. 'They are best for those with a time horizon of five years or more because as we've seen recently, financial markets, especially equities, can be very volatile over the short term. Over the long term however, they've historically delivered much higher returns than cash over a period of five years or more.' 'With this ISA, a DIY investor could choose their own investments, and can spend time selecting the assets that they want that match their attitude to risk and manage their performance,' she adds. She adds that some investment platforms also offer ready-made portfolios or off-the-peg investment portfolios – typically tailored to different levels of risk. This then allows investors to choose if they want to put their money in a ready-made portfolio. Junior ISAs ' Children are eligible for an ISA too and with a junior ISA they have an allowance of £9,000 every tax year,' Haine says. 'This is often a popular way for parents or grandparents to build up tax-efficient savings and investments for a chid. This money can be held in cash or investments. Lifetime ISAs 'A lifetime ISA is specifically designed for meeting two goals – either to help purchase the first home or to save towards retirement. Importantly, the lifetime ISA has a maximum that you can contribute per tax year which is up to £4,000,' says Haine. 'These are available for people age between 18 and 39 and the government will then top up their contribution by up to 25% – meaning that's a free cash bonus effectively. 'When it comes to lifetime ISAs however, the pot must either go towards the purchase of your first property – which is capped at £450,000 in value or it must be held until the individual turns 60 to be used for their retirement.' 'An innovative ISA typically enables savers to engage in peer-to-peer lending – people can lend up to £20,000 to borrowers and businesses without getting their money taxed. These are typically for people who like to take on a little bit more risk,' Haine says.
The Independent
02-05-2025
- Business
- The Independent
What is an ISA and which one should you open?
There has been a rise in people opening Individual Savings Accounts (ISAs) as a means to save and also make tax-free money over the years. According to the Bank of England, in February alone, £3.5 billion was ploughed into cash ISAs for example. However, for many, finances and understanding what exactly these savings accounts are and how they work, can be overwhelming. Whether this is the first time saving and investing or if the number of options are overwhelming in general, it can be quite difficult to wrap your head around. We have put together a guide about all things ISAs to make the process a little bit easier for people – and their finances. What is an ISA? Rachel Springall, finance expert at MoneyFacts explains that an ISA offers savers the possibility to put away money that doesn't get taxed. 'That draws people to ISAs as they can invest up to £20,000 a year which is tax free. If you do withdraw that money however, it will become taxable,' Springall says. 'Therefore if people want to move around their ISA, they will need to transfer it to another one. Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, emphasises that it's important people are thinking about making their savings and investments tax efficient to ensure they can hold on to as much of their earnings as possible. She also adds it is worth noting that if the full allowance of an ISA isn't used within the 12 month period, you then lose it and a fresh one starts for the next year. Although Springall says that ISAs can encourage saving habits, they may not be for everyone. 'It is important to remember that ISAs were introduced 25 years ago and they aren't the suitable choice for everyone. It really depends on who you are, how old you are and what you're saving for,' Springall adds. General cash ISAs 'Cash ISAs are saving accounts where you don't pay tax,' Haine explains. 'Similar to a regular savings account, you can have an easy access or fixed-rate option where cash can be locked away for a set period. You can open one through your bank or your investment platform. I would advise people to shop around for the best rate they want and then allow your cash savings to grow over time. 'Generally these are better for those who are saving money for a short-term time horizon or who need access to the money faster.' Stocks and shares ISAs 'A stocks and shares ISA allows savers to invest in shares, funds, investment trusts and bonds with no tax on any gains or income from assets held in the account,' Haine explains. 'They are best for those with a time horizon of five years or more because as we've seen recently, financial markets, especially equities, can be very volatile over the short term. Over the long term however, they've historically delivered much higher returns than cash over a period of five years or more.' 'With this ISA, a DIY investor could choose their own investments, and can spend time selecting the assets that they want that match their attitude to risk and manage their performance,' she adds. She adds that some investment platforms also offer ready-made portfolios or off-the-peg investment portfolios – typically tailored to different levels of risk. This then allows investors to choose if they want to put their money in a ready-made portfolio. Junior ISAs ' Children are eligible for an ISA too and with a junior ISA they have an allowance of £9,000 every tax year,' Haine says. 'This is often a popular way for parents or grandparents to build up tax-efficient savings and investments for a chid. This money can be held in cash or investments. Lifetime ISAs 'A lifetime ISA is specifically designed for meeting two goals – either to help purchase the first home or to save towards retirement. Importantly, the lifetime ISA has a maximum that you can contribute per tax year which is up to £4,000,' says Haine. 'These are available for people age between 18 and 39 and the government will then top up their contribution by up to 25% – meaning that's a free cash bonus effectively. 'When it comes to lifetime ISAs however, the pot must either go towards the purchase of your first property – which is capped at £450,000 in value or it must be held until the individual turns 60 to be used for their retirement.' Innovative ISAs 'An innovative ISA typically enables savers to engage in peer-to-peer lending – people can lend up to £20,000 to borrowers and businesses without getting their money taxed. These are typically for people who like to take on a little bit more risk,' Haine says.
