What is the difference between a cash ISA and an investment ISA?

savingsBoth cash ISAs and investment ISAs help to shield the investor from paying taxes to the British government. The main difference between the two is the liquidity of the account, as well as investment options available to the account holder. Both accounts provide tax advantages, and any savvy investor knows that any retirement strategy that provides legal tax advantages is a wise one. Taxes and fees can quickly erode the principal balance of any account if one is not careful. The fact of the matter is that no one wants to see their hard-earned pounds go to paying taxes rather than helping reach your retirement goals. In order to accomplish this, it is imperative that good sound strategy be implemented, and that tax planning is part of that strategy. Helping to protect your investment is precisely the advantage afforded to account holders of each ISA type.

A savings account is one of the most liquid and safe investment vehicles available in the financial world today. An account holder deposits cash, and the banking institution pays a specified amount of interest on that cash. Typically, interest earned in a savings account is subject to UK Income Taxes, but this is not the case with a cash ISA. In order to open a cash ISA, you must be at least 16 years of age, and a citizen of the U.K. When you open your cash ISA account, you will pay no UK Income Taxes on any interest made in the account. Keep in mind that deposits to your cash ISA is made with after-tax dollars, and there are annual contribution limits to keep in mind in order to continue to enjoy tax-exempt status. These limits are set by the government and can change from year to year. In order to enjoy the full tax benefits, you must stay within contribution limits, as well as meet eligibility requirements. See your local banker or consult with a tax accountant who can help you understand the regulations around cash ISA, and help sort through complex tax affairs with you.