The new tax year is upon us, and just like a new calendar year, it’s a perfect time for new beginnings.
And when it comes to finances, that means a new tax-free ISA allowance.
Whether you have a few pounds spare at the end of the month, or a large lump sum, an ISA could help you make the most of your money.
So, what are your options?
Answer these seven questions to find out.
1. Do you know how ISAs work?
ISA stands for Individual Savings Account, and any interest or investment returns are tax free.
You can save up to £20,000 into an ISA during the 2021 to 2022 tax year, which begins on April 6.
There are different types of ISA, including a cash ISA, which is similar to a standard savings account and pays interest, and a stocks and shares ISA, where your money is invested in the stock market.
You can click here for a more detailed guide to the different types of ISAs and how they work.
2. What are you saving for?
The answer to this question may help you decide which ISA works for you.
Some ISAs are as simple as a standard savings account you might choose to save for a holiday or build up an emergency fund.
There are also ISAs specifically for children, and others designed to help you buy a home or save for retirement - the official government guide is here.
If you are a first-time buyer aged between 18 and 39, you can place up to £4,000 into a Lifetime ISA during the 2021 to 2022 tax year. The government will contribute a further 25% to boost your savings towards a deposit up to a maximum of £1,000.
You can also use a Lifetime ISA to save for retirement. These are more restricted and there are age limits for when you can contribute and when you can start to withdraw The Money and Pensions Service is a good place to find out more about retirement options.
3. How much do you want to save?
Your £20,000 ISA allowance for the tax year between 2021 and 2022 can be split across different types of ISA, so if you put £4,000 into a Lifetime ISA, you would be able to put £16,000 into a cash ISA in the same tax year.
If you have saved into an ISA in previous years, you can transfer the balance into a new ISA without affecting your current allowance.
Whatever you can afford, saving is a healthy habit to get into - click here for more information on how to make it part of your life
4. Are you saving for a child?
You can pay money into a Junior ISA for any child you have parental responsibility for.
The annual limit is £9,000 for the tax year 2021 to 2022, which does not affect your own ISA allowance, and can be split between cash and stocks and shares.
While you can open and manage an ISA for your child, the money paid in belongs to them.
They can take control of the account from the age of 16 and withdraw money once they are 18.
5. How quickly might you need access to your money?
As with many savings products, cash ISAs can offer higher rates of interest if you are prepared to lock your money away for longer. However, there can be penalties if you withdraw money before the end of an agreed term.
6. Are you prepared to take a risk?
With a stocks and shares ISA your money is invested into the stock market. If the value of your investments goes up, so does your ISA fund value, but if the market drops, your balance goes down too, and you will lose money.
There are also fees, which are deducted from the value of the fund, and need to be taken into consideration.
With some stocks and shares ISAs, you can choose your investments. Others, will make investment decisions on your behalf, based on the level of risk you are comfortable with.
7. Is there a better option for you?
The range of available ISAs means they offer an option for almost everyone, at every stage of life, from helping your child save for college to buying a home and planning for retirement.
But everyone’s circumstances are different, and there may be a better option for you.
The government-backed Money Advice Service has a wide range of information, advice and calculators to help you make an informed decision on what is most suitable for you.