Jan 30 2013
Do you have any funds to invest? Have you ever even thought about investing your money? It’s not always something that too many of us think about, but if you’ve built up a significant savings pot already, investing is the perfect way to really build on this. And with many savings accounts offering interest rates that are less than the rate of inflation, if you want to build on your savings you don’t have too much of a choice, but to invest.
So, how and where should you invest? Here’s our guide to two of the best available options.
Stocks and shares ISA
Even if you don’t know too much about investing, you might know a bit about the tax benefits of ISAs, but your knowledge may just relate to the tax free benefits of saving through a cash ISA. A stocks and shares ISA offers the means to invest your money in a variety of different options, with significant tax benefits. For the current tax year, you can invest £11,280 with this increasing to £11,570 on 6th April 2013.
Depending on the provider you choose, you’re able to invest your ISA allowance in the following:
- Stocks and shares
- Government bonds
- Corporate bonds
- Permanent interest bearing shares
- Investment trusts
- Exchange traded funds / commodities
This is the important bit. Whilst with a cash ISA, any interest you earn is tax free, it’s a little more complicated when it comes to a stocks and shares ISA. The best way to think of an ISA is as a tax wrapper, whereby you can hold a variety of investments that are sheltered from tax. Any investments you hold will work in exactly the same way as if they had been bought outside an ISA, whereas it’s when you sell them you see the difference. When you do this there is no requirement to pay any Income or Capital Gains Tax. Therefore if you choose to use your ISA to provide you with an income, there is no further income tax to pay on that.
Self-invested personal pension (SIPP)
The problem with many pensions at the moment is that they are underperforming. Leaving your retirement pot in an underperforming pension will not stand you in good stead for when the time comes to actually retire. A SIPP enables you to take control of your pension fund and make all the decisions in relation to how your pot is invested – it’s basically a “do it yourself pension scheme”.
Many SIPP providers offer a wide range of investments in line with those offered through a stocks and shares ISA, offering a much more diverse potential portfolio than a standard personal pension.
With a low cost charging structure and online accessibility offered by many SIPP providers, it’s certainly an option worth considering.