Moving to the UK isn’t as much of a culture shock as you’d expect. Everyone here may drive on the wrong side of the road, and the metric system required some mental gymnastics for the first few weeks, but some things are actually much simpler, especially when it comes to money and saving.
*Quick Note: this article is intended for readers now living in the UK. Sadly there’s no equivalent for saving in the US, and something like an Individual Retirement Account (IRA) would be as close as you get.
I recently was buying tickets for a concert online on Ticketmaster (Dawes if you were keen to know who), and whatever your views on the website, they can surprise you with a deal here and there. After buying the tickets, there was a pop-up offer to buy a box of fancy craft beer for just £5 of New England style beers; beers that are more Harpoon Brewery than Sam Adams (I was shocked to find that Sam Adams sold over here is made in London). It was an offer too good to be true, so of course, I ordered it. When it arrived, in the box was all the lovely foreign beers I could sample, but there was also a bunch of leaflets too.
I’m used to seeing leaflets prep services when you get something delivered or from listening to podcasts, but this box had a leaflet for an ISA company. I will admit that I knew absolutely nothing about ISAs apart from seeing them in ads and sometimes hearing about them on TV as the UK has shows dedicated to finance and savings that are helpful, and not at all like Mad Money.
This leaflet, in particular, was for a company called Scottish Friendly. Because I like doing my research, a spot of post beer Googling took me down a rabbit hole that led me to an FT article about how Scottish Friendly is pretty popular and how ISAs aren’t as scary as I thought. In fact, banks here love the idea of people saving money over using credit scores as a barometer.
If you’re like me and are completely oblivious to the world of ISAs, fear not my friends!
I thought it would be a great idea to do a short post that shies away from debt advice and instead takes a look at how you can be a savvy saver when you get an ISA, especially if you’ve moved to this side of the pond and are looking for ways to save money in the long-term.
In the simplest terms, what’s the deal with ISAs?
Tax! ISA stands for Individual Savings Account. They are essentially the same as a bank account, only with more conditions in place. Someone would have an ISA if they were looking to save money and reduce the amount of tax they have to pay on that money. Everyone has a Personal Savings Allowance, which is meant to eliminate paying tax on savings income.
And why is a PSA important?
It used to be that people would get taxed on all their savings (terrible, right?). With the PSA, a normal taxpayer can get up to £1000 a year now, and it won’t be taxed as a means to encourage more people to start saving money, rather than money sitting in a current account.
So where does the ISA play into this?
Imagine you want to start saving money for the future. Back home all we really have are the 401K or IRAs. You can pop your money in a normal savings account, but it won’t provide you with any major gains over timeas it has extremely low interest.
Instead, you can take some savings and put them in an ISA. This took me a little bit of time to wrap my head around, but once you get it, you get it.
You can open an ISA, and the interest on it will be tax-free, i.e. you don’t pay any tax and get to keep that money. Within the world of ISAs, there are main types of ISA you could put your money in, which include:
- Fixed Rate Cash ISA
- You say you’re putting X amount of money in, which in return will guarantee a fixed amount back
- Regular Savings Cash ISA
- You pay monthly in return for a better rate
- Stocks & Shares ISA
- You take your savings, and they’re used to buy stocks, which in turn should help you get more money in return, but it comes at a risk
It seems like a minefield…
Oh, believe me, it is. Just getting that one simple leaflet led me down the rabbit hole on ISAs, trying to figure out what they were and even if they work. If you are at the age where you want to start saving for specific goals like being able to put a deposit down on a house, buy a car or have a safe pool of money when an emergency happens (like having to suddenly fly back stateside), you should start reading up on ISAs and how to get one.
Where should I go to learn about ISAs?
Your bank most likely will provide you with the option to get a Cash ISA or Stocks & Shares ISA, so I suggest going on their website first to get a good grasp of what you can do with your accounts.
I would also recommend looking at ISA providers like the aforementioned Scottish Friendly, Virgin Money and other companies who would be more inclined to offer you a slightly higher interest rate than your bank. Sites like Money Saving Expert and Which? also have clear guides that will walk you through what can be done.
Are ISAs worth it?
If you’re wanting to get serious about saving money in the long term, then look into getting one. The fact that you can save tax is always good, and the ability to have better financial control over the years is a plus. I recommend looking into it as it opened my eyes that there are better ways to save your money.
James Moore is a writer specialising in business, technology and finance. His main interest is dealing with issues that many startups encounter in their first year, like taxation and patents. In his spare time, James enjoys spending time with his kids and sampling the best coffee in independent cafes.