What’s an ISA?

Becoming a university student entails having many more responsibilities, like that of managing your own money. While before you were used to the comfort of your own house, and the cost of living in other countries or cities, now you find yourself having to pay for an accommodation or a flat, and having to survive in the 4th most expensive city in the world. This makes you aware of how important it is for you to learn how to responsibly save and use your money. However, navigating this landscape can be very difficult. 

If you feel overwhelmed and kind of lost when thinking about saving, you’re in the right place. This article will help you find your way through ISAs. 

But first of all, what’s an ISA? ISA stands for Individual Savings Account, and it is a popular way to save or invest money in the UK, as it is tax-free. For every tax year, the maximum amount that can be deposited in ISAs is £20,000. A person can open more than one ISA, but only if they are of different types. 

There are four kinds of ISAs: 

• Cash ISAs usually include savings in the bank or building society accounts. They are especially suited for people who do not have to deposit large amounts of savings, but want to continue to have the account on a long-term. 

• Stocks and Shares ISAs can consist of government or corporate bonds, shares in companies, or investment funds. However, with this type of savings account, it is important to remember that it is never free from risk as the value of shares and bonds can go up and down. Because of this, Stocks and Shares ISAs are not strongly recommended for students, who would have to put the money away for around 5 years to smooth the fluctuation. 

• Finance ISAs are offered by companies, which will lend your money to borrowers with an interest rate. You will receive part of the profit made from the interest. Students are discouraged from having this ISA as it is more difficult to withdraw money from it, given that the money does not remain intact in the savings account, and as there is the risk of borrowers being unable to repay their loan. 

• Lifetime ISAs reach a maximum of £4,000 per tax year and they can consist of cash or stocks and shares. For each month that you save money and add it to the account, the state will add a 25% on top. Owners of Lifetime ISAs have to be aged 18 to 39. The money deposited in this account can be withdrawn only in the case of the owner buying their first house or if they are 60 or older for retirement. 

Students are usually recommended to open Cash ISAs or Lifetime ISAs. This is because, compared to Stocks and Shares ISAs and Finance ISAs, the money that is deposited is less prone to risks. 

Although it can be difficult to get the gist of ISAs, students are often encouraged to opt for them if they want to start saving as ISAs are suitable for long-term commitments. This way, by starting in uni, you can continue to add to the account after graduation, all while avoiding the burden of additional taxes. 

Hopefully now saving does not sound as complex!