Accounts – A home for your money

Once you’ve decided you want to invest, there are a number of accounts to choose from. But the one you choose usually depends on what you want the money for. Do you need it in a few years to buy a house? Or is it to save for when you retire from your current job and become a full-time Netflix viewer (another real job)?


All of the accounts in this lesson are for investments so remember that the value of investments can go down as well as up.

Stocks & Shares ISAs – the easy peasy one

ISA stands for Individual Savings Account. As the name suggests, an ISA is a type of account to help you save money. There are different types of ISAs but if you’re looking for a simple, flexible account to keep your investments in, a Stocks & Shares ISA is a good place to start. They are a very popular choice for first-time – and experienced! –investors. They’re ideal for saving up for a big purchase, such as a house, or just to put money away for the future.

Stocks & Shares ISAs are quick and easy to set up and, because you usually have to pay tax when you make money on investments or when you sell them, a great benefit (of all ISAs, not just Stocks & Shares ISAs) is that they are tax-free.

You have an ISA ‘allowance’, which is the amount you can save into your ISA each year. This tax year (2021/22) your allowance is £20,000. Keep an eye out though as allowances can change annually at the start of each new tax year: 6 April.

Junior ISAs – the ‘for the kids’ one

Junior ISAs are a great way to save for kids and their inevitably expensive future. You can save up to £9,000 in the account each year (for the 2021/22 tax year), and they have the same tax perks as adult ISAs. A Junior ISA can only be opened by parents or guardians, but other people can contribute to it once it’s open.

The money can’t be accessed by the kids until they’re 18 (when it becomes a standard ISA), so don’t worry, they can’t take it all out when they’re 16 for a holiday to Maga.

Lifetime ISAs – the ‘get it together while you’re under 40’ one

Lifetime ISAs (known for short as LISAs – pronounced like the lice you probably had in your hair as a kid and not like Lisa Kudrow) were introduced by the Government in 2017 to help people under the age of 40 save for their first home or retirement.

You can choose either a cash or investment LISA and save up to £4,000 a year into one and the Government gives you a whopping 25% bonus. But tread carefully because there are lots of rules around LISAs. They don’t give you the same flexibility as other ISAs and you get a penalty (not like the ones from football where you still have a chance of winning) if the money doesn’t go on your first home or retirement.

Pensions – the 'when you're older' one

Pensions are to save money for when you stop working. With a pension, you invest your money to save for retirement and you won’t see a penny of it before you’re at least 55. With so many expenses in life already, most of us don’t bolt towards saving for your much older self, but the Government can’t fund everyone’s retirement so it’s important to have your own stash ready.

You can pay as much as you earn in a year (usually up to a max. of £40,000) into one before you have to pay any tax – and if you can afford to pay in as much as you earn in a year, you’re probably reading this on a beach in the Seychelles...

Plus, when you pay into your pension, the Government adds money as well – yes, really! They will add an extra 20% (and if you’re a higher or additional-rate taxpayer, you can claim even more tax back too). When you’re ready to take the money out of your pension, you’ll get 25% tax-free and the rest is taxed at your normal Income Tax rate. But that’s future you’s problem, right?

Although there are many different kinds, pensions from work and pensions you set up yourself are the main ones you may need to think about for now.

Pensions from work

These couldn’t be any easier to get involved with since most people are automatically enrolled as soon as they get a job (companies are required by law to have a pension scheme). A percentage of your salary is added to your pension before you even see it. Adios amigos!

But, wonderfully, your employer is obligated to top up your contributions too – with some companies matching yours or even adding more.

To be eligible for auto-enrolment (which is less exclusive than it sounds) you need to be:

  • Between 22 and State Pension age
  • Earn more than £10,000 per year
  • Work in the UK (usually)

 

The money inside your work pension will be invested in the stock market, but the investments offered by work pensions vary a lot so we can’t comment on them here. Take the time to understand your options because it could make a big difference to the amount of money you have in the future.

Personal pensions

There are different types of personal pensions including stakeholder pensions and SIPPs. The one we focus on at Bestinvest is a SIPP (you say it like you’d SIP from a SIPPY cup), which stands for Self-invested Personal Pension, and it kind of does what it says on the tin.

Self-invested Personal Pensions (SIPPs) explained

SIPPs are popular because they’re easy to set up and look after and, unlike some other pensions, they give you access to a lovely big range of investments. They can charge higher fees than other pensions offering less choice – you get what you pay for – so you should think about whether you want a large investment choice before you commit.

SIPPs are popular with self-employed people as they’re not auto-enrolled in a pension from work or part of the traditional PAYE system. So gig-workers, freelancers, gardeners, consultants, bloggers, and many more have to do it themselves. So after working freelance as a holiday rep in Ibiza who specialises in raves, they come home and sort out their pension. It’s just one extreme after another…

Investment Account – the ‘basic’ one

Keeping it short and sweet for this one. An Investment Account is handy if you’ve used up your ISA allowance or want to use the money before you hit an age when you don’t care about Mondays anymore (aka – retirement).

Prove your knowledge

Quiz time! If you get the answer right, you may proceed to the next lesson. If you get the answer wrong, you shall not pa… well… okay, actually you can still go ahead… but without our heartfelt congratulations! 

What’s a Stocks & Shares ISA?

A

ISA stands for Individual Savings Account. They’re popular for investors of all stages and you can save £40,000* in one each year. (*Subject to change each tax year).

B

ISA stands for Important to Save Antelopes.

C

ISAs are good for when you’ve run out of allowances in your other investment accounts and don’t offer the same great tax benefits.

D

ISA stands for Individual Savings Account. You can save for the future easily and can keep up to £20,000* in the account each year. They’re every popular for investors of all levels. (*Subject to change each tax year).

Lesson two
Where do I start with investing?
Lesson four
What can I invest in?