Why Are We Encouraged to Save Money?
From a young age most of us are told to save money for the future – maybe for something special, or perhaps to be sure that when we really need something we have the funds available, without taking on any debt? Whether you place your money in a money box, or in a multi-national investment house, our aims are broadly the same; to provide for our future needs, and to protect ourselves against unexpected causes of expenditure.
When planning your finances, it is important to establish the difference between savings and investments. Savings are generally funds that you set aside like a bank account, but can be accessed relatively quickly. These savings are often for a specific need or purchase, like a holiday or a new car or emergency funds. The most common way of ‘saving’ is into a bank account (‘deposit’ account) where the money can be accessed in an emergency, so for every £1 you put in, you will get £1 back and possibly some interest.
Investments are designed to be held for a medium to longer term, usually at least 5 years. You need to be comfortable with tying up this money for a period of time, and should not consider investments unless you have other forms of savings in place like a deposit account.
It is Channel One’s role to help you choose the right investment in order to help you meet your objectives. What you need to give some thought to is what those objectives are or what you are saving for, or just saving in a tax efficient manner for the future event.
You may be looking to transfer any existing ISAs to Channel One who can discuss your options.
You may be even wanting to save within an ISA on a regular basis or invest a lump sum.
As there are usually no minimum periods of investment and limited tax implications, ISAs can be an attractive proposition, especially to those paying tax.
Stocks and shares ISAs offer the possibility of higher returns than their cash alternatives but they do come with higher associated risk. Unlike a cash ISA which offers tax free saving, a stocks and shares ISA lets you put money into range of different investments funds.
During the 2017/18 tax year you can invest up to £20,000 into an ISA; this will be the same in the 2018/2019 tax year.
General Investment Account (GIA)
A General Investment Account (GIA) is similar to a Stocks and Shares ISA in that it is a form of savings kept with a banking institution for a stated period, with the exception that it has no tax-free benefits. It is a vehicle for housing various investments and is a suitable ‘feeder’ account to fund an ISA and simplify contributions where the investment size exceeds the annual ISA allowance. Income tax is payable on income and in addition you can use your annual capital gains tax allowance. This makes the GIA a tax efficient plan and the average rate of tax on gains is generally low.
An investment bond is a single premium life insurance policy that can hold numerous investment funds in one place. The attachment of life insurance means trust planning is available. It is a long term financial commitment but has no fixed term. It provides a way of investing in funds of different assets for example equities, bonds and property.
Investment bonds can be a very tax efficient method of investing depending on your circumstances and are often used in inheritance tax and trust planning strategies. Withdrawing up to 5% of each investment every year can provide tax efficient income.
Offshore Investment Bonds
Offshore bonds benefit from ‘gross roll up’ which means that the investments within the bond grow virtually free of income tax and capital gains tax. But, there may be tax to pay when you take benefits from the bond.
Investing carries a variety of risks and investments can fluctuate in value which means your capital is a risk. You may not get back the original amount invested. It is important you understand any risks involved before making investment decisions.