Differences between savings and investment accounts

Many people struggle to understand the difference between savings and investment accounts. These are two very different types of account and can offer different benefits. A savings account can be opened to save money for the future. Depending on the type of account one chooses to open, the money on the fund could also be invested or not. On the contrary, investment accounts are usually opened to give money the chance to grow over time. When investing money, you’ll be putting it at risk with the goal of getting back more than what you deposited. Of course, all investments come with a risk and there will also be a chance to get back less than you put in. That’s why it is always advisable to have a very diversified portfolio in order to spread the risk over many areas of investments, like stocks, bonds, shares, land, real estate and so much more. You’re wondering how to save and invest money in the UK? Let’s have a look on your options.

ISA – Individual Savings Account

Nowadays, ISAs are really popular among new investors. That’s because they are a particular kind of savings account which allow the holder to save money for his or her future while investing it. Another reason why ISAs are so popular is because all the money deposited will always be protected from tax. By putting your savings on an ISA you’ll be investing it in a tax efficient way. Of course, that doesn’t mean that ISAs are completely risk free. On the contrary, just like any other kind of investment, you could also ending up getting less than you put it. Nowadays there are many types of ISAs available in the UK, like Stock and Shares ISA, Cash ISAs, Lifetime ISA, Innovative Finance ISA and Junior ISA. All of these accounts come with a restriction on the maximum amount of funds that can be deposited in a year. This limit is called “annual ISA allowance”, which amounts to £20,000 per year for all adult ISAs and to £9000 per year for Junior ISAs.

GIA – General Investment Account

Unlike an ISA, a GIA is a General Investment Account which has been specifically designed to give the holder the opportunity to invest in a variety of different areas outside of tax wrappers. GIAs are available for all UK residents over the age of 18 and they allow the holders to invest in funds, shares, bonds, EFTs and so much more. Unlike a retirement fund, a General Investment Account allows the holder to withdraw his funds at all times with no restrictions. On the contrary, by putting money on a pension account you won’t be able to access it until you reach your retirement age. Also, the main difference between this kind of account and a regular ISA, is that GIAs don’t come with particular tax benefits and the holder will have to pay contribution according on his tax situation. A GIA is usually best suited for people who already opened an ISA and exceeded the annual allowance and also for all people under the age of 55 who want to have the freedom to withdraw their money before their retirement age. Although a General Investment Account could look like a very convenient kind of account for new investors, it is really important to take into consideration the market volatility, which fluctuations and swings could be unpredictable. For this reason, it is always crucial to set a good plan before starting to invest. You may also consider seeking advice from a financial advisor or from a digital platform.

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