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The ISA myths robo advice investors should dispel this ISA Season pt.1

In this two part series, digital wealth manager Nutmeg reveals the most stubborn ISA misconceptions.

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There are only a few weeks left before the tax-year deadline, many more investors are eyeing robo advice as a viable option to invest their Individual Savings Account.

With returns on cash ISA meagre at best, many are looking to the new Innovative Finance ISA and regular stocks and shares ISAs for both income and growth.

Many experts are also expecting ISAs to play a bigger role in investors overall wealth planning, not least as the current allowance of £15,240 is set to rise to £20,000 in April. In this brave new world, however, a huge gulf of information exists.

With the help of Lisa Caplan, Nutmeg’s head of financial advice, we took a look at the biggest myths surrounding ISAs.

Myth 1: the money is locked in

“This is the most stubborn misconception of all,” Caplan said. While investors will get slightly better rates from cash ISAs if the money is invested for than a year, individuals can withdraw money whenever they want. However, there could be exit penalties if you do move your money, so check the terms and conditions, she added.

Myth 2: ISAs are only for people with lots of money

Investing these days is no longer just for the wealthy. There is no minimum amount of investment for many ISAs, although your interest rate and fees could vary based on how much you invest, Caplan said.

“ISAs are important for almost anybody, and you don’t have to fill the ISA allowance. Just save anything you can, and let compounding returns do the work,” she said.

Myth 3: ISAs are just for cash savings

Money can be kept in cash, invested in stocks and shares, or even a mix of both. In fact, ISA money in the UK is split in half between the two, according to Her Majesty’s Revenue & Customs.

“Many people use stocks and shares ISAs when they are willing to take a risk with their money to secure a higher return in the long term,” she said.

Myth 4: Stocks and shares ISAs are for seasoned investors

Stocks and shares ISAs can be invested in just about anything, said Caplan. Most often, the money is invested in a fund that tracks the stock market or a group of companies. That means investors don’t need to keep track of where their money is invested- the advisor tracks it for you.

Myth 5: The ISA limit is the total limit of what I can invest this year

Investing is not just limited to ISAs. You can invest outside of the ISA, but it will be subject to tax. The advantage of investing in an ISA is that it is never taxed as income or as a capital gains tax. That is why there is an increase of investment at the end of March- investors want to use their allowance before the end of the year on 5 April.

Myth 6: If I get a stocks and shares ISA I’ll have to do a tax return

Nope! All money invested in an ISA up to the allowance means that it’s not taxed. Which means one less tax return to fill out and more time enjoying the brisk spring weather.

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