What Is an Individual Savings Account?

Mary McMahon

An Individual Savings Account (ISA) is a type of retirement account available to British investors. People planning for retirement can deposit cash in an ISA or purchase investments and hold them in the account. After retirement, the funds can be withdrawn without penalty to pay for living expenses. There are tax advantages to the Individual Savings Account model, making it appealing to many people who want to set money aside without incurring financial penalties. Many financial institutions offer ISAs to qualified customers.

Individual Savings Accounts are intended to fund the retirement of British citizens.
Individual Savings Accounts are intended to fund the retirement of British citizens.

The government sets annual limits on how much money people can deposit into an ISA in a given year, with the goal of preventing the use of such accounts as tax shelters. People can choose to invest in a cash account or an investment account. Some people split their investments. This ensures a steady, but slow, growth in the cash account, while allowing people to engage in more risky investments to try and increase the size of the investment account.

The government sets limits on the amount of money that people are able to deposit into an Individual Savings Account in a given year.
The government sets limits on the amount of money that people are able to deposit into an Individual Savings Account in a given year.

The Individual Savings Account was introduced in 1999 for people over the age of 16. People deposit income in the account after tax, and are not subject to income taxes or capital gains taxes on the earnings from the account. There are also no restrictions on the age people can choose to start drawing on an Individual Savings Account. This allows people to make independent decisions about the age of retirement without worrying about access to retirement funds.

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Retirement involves financial planning.
Retirement involves financial planning.

Funds roll over from year to year in the Individual Savings Account, and people can switch financial institutions to take advantage of better deals and other benefits a company may make available to entice customers. People who want to save more than the yearly deposit will have to explore other kinds of savings and retirement accounts to meet their needs in order to avoid running afoul of the deposit limits set by the government.

Individual savings accounts may be used to put money away for future child costs.
Individual savings accounts may be used to put money away for future child costs.

Such accounts can be an important part of retirement planning, paired with anticipated pension earnings and other investments. People concerned about retirement can meet with an accountant to discuss planning options and determine on the best choices for their situations. It is also important to think about estate planning so the funds can be directed appropriately if people die with outstanding balances in their retirement accounts. There are a number of options to consider when planning a will, including bequeathing funds to partners, family members, or charitable causes.

A financial planner may offer advice for those who want to save more than the yearly maximum for their ISA.
A financial planner may offer advice for those who want to save more than the yearly maximum for their ISA.
An Individual Savings Account can be an important part of a person's retirement program.
An Individual Savings Account can be an important part of a person's retirement program.

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