MILLENNIAL SAVERS – SAVINGS PLANS FOR YOUNG ADULTS
Following on from his article in the summer edition of Adviser where he discusses the savings options for children, James Wright , Independent Financial Adviser takes a look at the investment options available to students and young adults who want to save for their future – whether that means paying off their student loan, saving up for a house, or setting up a regular investment plan.
Savings accounts in a bank or building society Minimum investment: Usually £1 but varies by provider and type of account. Rates of interest: Varies by provider and type of account. Regular (monthly) savings plans usually give a higher rate of interest than one- off deposits, although rates can also change at the end of the initial period. Tax implications: Interest is tax free if within your annual Personal Savings Allowance of £1,000 for basic rate taxpayers, £500 for higher rate taxpayers. If over these amounts then tax will be at 20%, 40% and 45% depending on your tax bracket. Other things to bear in mind: Savings are protected by the FSCS scheme which limits cover to £85,000 per bank/building society. Lifetime ISAs (LISA) Minimum investment: £1 for a Cash LISA, or £100 lump sum £25 per month for an Investment LISA. Rates of interest: Varies for Cash LISA (up to 1.4% currently), Investment LISA rate varies according to attitude to risk and fund(s) selected. Tax implications: Saver receives an additional £1 for every £4 contributed. Savings are free of Income Tax and Capital Gains Tax. Ease of access: Mostly Instant Access or else determined by the terms of the account.
Stock and Shares ISAs Minimum investment: Dependant on the terms of the ISA provider: typical monthly minimum investment is £25, one-off typically £100. Rates of interest: Varies depending on attitude to risk and funds selected. There are various multi-asset funds that can be used with low costs and global diversification for the underlying investments.
Ease of access: Can only be accessed to purchase or your first property if you are aged 60 or over. Otherwise there is a 25% penalty if withdrawn at any other time (except on the death of the saver). Restrictions: Only available to open for savers aged 18-40. Contributions can be made up to the age of 50. How much can be saved into each one per year: £4,000 (with further £1,000 added by the government). Other things to bear in mind: A good option for first time buyers, but a pension should be considered for retirement funding. Cash ISAs Minimum investment: £1 Rates of interest: Usually higher than a bank or building society account – but they vary considerably.
Tax implications: Free from Income Tax and Capital Gains Tax.
Ease of access: Available to all savers aged over 18. Charges may apply to withdrawals with certain providers.
Restrictions: Varies dependant on ISA provider.
How much can be saved into each one per year: £20,000 (less any contributions to other ISAs). Other things to bear in mind: Consider your timescale for investment. The shorter the term of investment the higher the risk being taken. Help to Buy ISAs (Last chance to open 30 November 2019) Minimum investment: £1. Rates of interest: 2% plus interest rates available. If the savings in the ISA are used to buy a first property then the government will top up the ISA by 25%.
Tax implications: Free from Income Tax.
Ease of access: Cash ISAs are set up as either Instant Access or Fixed Term. Higher interest is available for Fixed Term as opposed to Instant Access.
Restrictions: May have withdrawal restrictions or penalties applying to Fixed Term Cash ISAs.
How much can be saved into each one per year: £20,000 (less any contributions to other ISAs). Other things to bear in mind: Basic Rate and Higher Rate tax payers have a Personal Savings Allowance for interest of £1,000 or £500 respectively. Interest rates may be higher outside of Cash ISAs.
Tax implications: Free from Income Tax.
Ease of access: Can be withdrawn but won’t benefit from any government benefit.
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