0 What is a British ISA?

Saving has been an issue not just for me but probably for everyone else whose only goal is to live debt free and invest in something such as a house, car or a business. There have been several ways promoted to persuade people in saving. Back in April of 1999, the British government introduced ISA to promote saving to its citizens.

What is an ISA?                    

Individual Savings Account otherwise known an ISA is a British tradition created to promote saving in the UK. Basically, it is a tax-free account where a person could place their money or shares.

British residents use ISA for the primary purpose of avoiding paying taxes, thus promoting a better way of saving and keeping money. Not only cash can be put in an ISA but stocks and shares as well, ISAs help save tax on your savings and investments therefore increases returns.

If you are thinking that the concept of an ISA is complicated, here is a simple elaboration of what it is:

Imagine you have a pie (cash and shares). You have a friend (tax collector) who regularly keeps on asking for some piece of that pie. This is where the ISA comes in; your ISA acts as a wrapper (tax-wrapper) which protects anything that you put inside it from your friend (the tax collector). So if you want to save that slice of pie from your friend, you just put it in that wrapper. In this way, whatever is placed in your ISA may it be cash or stocks/shares, it is tax-proofed.

Why should you have an ISA?

If you are planning to buy a car or a house for example, cash ISA is a tax-efficient tool that ensures you to save a bit of money each year to pay for your goal. Even if you are putting a small amount in your ISA the rates you will get within an ISA will likely be much better than the rates you would receive outside an ISA.

                       

There are many other pros and cons in having an ISA but I’m not really in the position to discuss them as ISAs are not implemented here in the US, it would be awesome if our government would somehow introduce this program here as well though. This article is just a basic guide on what ISA is all about, if you have any inputs or any other queries regarding ISAs, feel free to speak up through the comment box.