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Almost 24m people in the UK — over a third of the population — have individual savings accounts (Isas), but are we making the most of them?
Far too many just use the popular tax wrapper as a shelter for emergency cash. That is a perfectly valid strategy, but is just one of the many things these versatile products can be used for.
An Isa can be a great repository for investments held elsewhere, such as shares that your employer has granted under a save as you earn plan, or that you bought in a privatisation or a demutualisation.
Things that would have been inadmissible in an Isa a couple of years ago, such as Aim shares and shortdated corporate bonds, are now allowed. Couples can now bequeath Isas to each other and preserve their tax-free status, while parents will soon be able to shift Child Trust Funds, most of which are uncompetitive, into junior Isas.
Unlike pensions, dividends and interest drawn from Isas is tax-free so they are great for use as an income generator in retirement, while the growing popularity of index-tracking funds means it is possible to build a low-cost “buy and forget” portfolio.
Isas that include peer-to-peer loans are not quite ready yet, but more adventurous investors can put things such as metals, property and asset-backed securities into their accounts. And if you fancy dabbling in shares directly, you can do that too.
Following changes in last year’s Budget, Isas are more useful and flexible than ever — the annual limit is £15,000 and will rise to £15,240 in April, while you can have any combination of cash and investments.
This week, FT Money writers suggest ten things you can do with your Isa.
1 Build a cash reserve
Cash Isas are still useful for higher-rate taxpayers
2 Save for your children
Finally it’s possible to transfer a CTF to a Jisa
3 The power of drip-feeding
Regular payments foster good investment discipline
4 Build a ‘buy and forget’ investment
Multi-asset investing is a popular hands-off option
5 Keeping it in the family
From next month you can pass on your savings
6 Look for income
Options for savers in desperate search of yield
7 Be your own fund manager
Building an equity portfolio can be rewarding
8 Clean up your portfolio
Investment fads come and go
9 Alternatives to help spread the risk
Options include commdities and property
10 A chance to consolidate
Bonds, Aim stocks and shares can be in Isa wrapper