What are growth ISAs?
Some of the features of growth ISAs include:
- Growth ISAs are intended as medium to long term investments, so you can typically expect short-term volatility.
- Growth ISAs tend to have a stronger focus on investing in stocks and shares.
- Growth funds tend to be higher risk funds, and so they are ideal for those looking to build their savings, or pensions, over longer periods of time.
Growth ISA rules
As with all savings and investment plans, there are a few regulations covering growth ISAs:
- You must be a UK resident and over 18 to hold a growth investment ISA
- As with all stocks and shares ISA options, each eligible individual has a maximum allowance to invest each tax year In 2014/2015, the maximum ISA limit is £15,000 (as of 1st July 2014)
- You have the option to invest your full allowance in a growth ISA, or invest up to half in a cash ISA and the remaining balance in a growth ISA or another type of stocks and shares ISA.
- You can't have more than one type of stocks and shares ISA in any given tax year.
Advantages of growth ISAs
- Growth ISAs offer investors the opportunity to spread their ISA allowance across a range of funds featuring different investment risk profiles and growth objectives.
- As well as offering the potential for good returns in the long term, investors who choose growth funds using their annual ISA allowance won't need to pay capital gains tax on any returns made.
- Growth ISAs can offer good long-term potential.
- Using your annual ISA allowance into a growth fund can offer the potential for good returns in the long term.
- You want to invest in a wide range of areas - a growth ISA can give you the opportunity to invest in a variety of collective funds that aim to achieve capital growth.
Limitations of growth ISAs
- If you're likely to need to get hold of your money at short notice, an instant access cash ISA or an easy access cash ISA might be a better choice.
- Growth funds tend to be higher risk funds and are therefore suited to those looking to build their savings or pension over a longer period of time.
- If you are seeking shorter-term income (for example, if you are close to retirement and are looking for an investment that will generate a regular income to top up your pension) you may find that an income ISA suits you better. If you use your ISA allowance for this type of investment, all income you receive will be tax-free.
Choosing a growth ISA
Growth ISAs are designed for those investors who are prepared to put money aside for a reasonable period of time. They are intended as medium to long term investments, and generally perform better over the long term than some other asset types, including cash. Some of the different growth ISAs available include structured growth ISAs, fund ISAs, and those that invest in emerging markets.
The key to making the most of your investments is to figure out what you hope to achieve before you start. Everyone's objectives are different, so the trick is to find the investment method that best reflects your current and future financial goals. As always, if you're unsure about any investment it's best to seek independent financial advice.