Have you thought of snapping up this year’s Individual Savings Accounts (ISAs) allowances to save for your children?
You may not be using your ISA allowances for yourself, but at the same time, you have been thinking lately of ways if saving for children, either to set aside some cash for your children’s education, or to give them a ‘leg-up’, someday, with their first time buyer mortgage deposit.
In that case, tax-free savings using your ISAs allowances are the perfect option!
With exactly a month left in this tax year, the time is perfect to cash in on this year’s allowances, and invest up to £7,200 in the next few weeks, before this year’s allowances expire on April 6th.
You can invest half of your allowances, £3,600, in a cash ISA, which combines the security of a bank account with the benefits of tax-free savings growth.
You also have the option of investing the other half of your allowances in a stocks and shares ISA, for tax-advantaged growth of your savings in the stock markets. This offers potentially higher returns, but at higher risk than the cash ISA.
If stocks and shares are more to your liking, you can save your full ISA allowance of £7,200 in a stocks and shares ISA – but this does not work the other way around. Only half your allowance may be invested in a cash ISA.
Stock market investments are best regarded as a longer-term option, and the stocks and shares ISA may be better suited to saving for children who are 12 or younger today, so that the money can remain invested in the ISA for at least 5-6 years.
Of course, setting up your ISAs in the next four weeks, so that you don’t miss out on this year’s allowances, is just the beginning. You can continue to save money into your ISAs every year.
Next year’s shiny new ISA allowances are substantially increased from this year’s levels.
From April 6th in the 2010/11 tax year, your total ISA allowances will be £10,200, again with the proviso that only half (£5,100) can be saved into the cash ISA, and half (or all £10,200, if you have no cash ISA) can be saved into the stocks and shares ISA.
Click here to find out more about saving in ISAs
