Why you should open an ISA today (and get investing in a jiffy)

There is nothing worse than receiving your salary or bonus and finding the taxman has taken a chunk of it. You’ve worked hard and want to keep all the rewards. This is where an Individual Savings Account (ISA) comes in handy, as it is one of the few places you can grow your money and shelter the gains from the taxman.

There is no income tax to pay on dividends, bond payments or interest on cash savings held inside an ISA. You’ll also avoid paying capital gains tax if you sell an investment held inside an ISA for more than you originally paid.

Are ISAs worth it?

ISAs are incredibly attractive from a tax perspective, and they can also be life changing as a place to build wealth.

Putting money aside gives you lots of options for the future. It can help to fund big life events, such as getting married, buying a house or paying for your child’s school or university fees.

Other things in life are unexpected and can cause a drain on your finances, so it pays to be prepared by building up a ‘just in case’ fund. This might be having money in case you need to replace a boiler or buy a new car if your regular motor gives up.

For example, if you put £100 into an ISA every month, the pot would be worth £6,962 after five years, assuming 5% annual investment return after charges.

The longer you keep investing, the more time you can benefit from the power of compounding. After 10 years, your ISA would be worth £15,848 based on the same contributions and returns as the first five years. That pot value soars to £41,663 after 20 years.

How to open an ISA

ISAs are quick and easy to open, and you can get investing in a jiffy. The sooner you start, the better, as investing is all about letting your money slowly build in value. Time in the market is more important than timing the market, so consider setting up a regular investment and drip-feeding money into your ISA as soon as you get paid each month.

AJ Bell offers a Stocks and shares ISA where you can contribute up to £20,000 each year. You can invest in a wide range of shares, funds, investment trusts and bonds, and take the money out of the account whenever you like.

Learn more about our Stocks and shares ISA

We also have Lifetime ISAs where the government will top up your contributions with free money. You can pay in up to £4,000 a year and the government pays 25% extra, up to £1,000 a year.

Learn more about our Lifetime ISA

There are some important rules around Lifetime ISA withdrawals that means this type of ISA may not suit everyone. Money placed in a Lifetime ISA would also count towards your overall £20,000 annual allowance, which is across all types of ISAs. Read more about ISA allowances.