Happy 21st to the ISA

An Individual Savings Account (ISA) is a tax wrapper for your money. There are two main types available depending on the level of risk you’re prepared to take:

• Cash ISA
• Stocks and shares ISA

If you’re 16 or older you can have a Cash ISA, whereas Stocks and Shares ISAs are aimed at 18s and over. In both cases you’ll need to be a UK resident to be eligible.

The ISA was launched by then-Chancellor, Gordon Brown, on 6 April 1999, as successor to the TESSA (Tax-Exempt Savings Account) and PEP (Personal Equity Plan) and has now reached the grand age of 21.

When the ISA was launched, the annual subscription allowance was £3,000 into a cash ISA or £7,000 into a stocks and shares ISA. The overall allowance has risen steadily over the years to reach a generous £20,000 in the 2020-21 tax year.

A first route into investment
Junior ISAs (JISAs) were introduced on 1 November 2011 and can be opened by parents or a guardian with parental responsibility, for a child from the minute they are born. Once opened, anyone can pay into the JISA, but a crucial point to note is that the child is not able to access the cash until they reach the age of 18. In the Budget earlier this year, the JISA annual allowance was increased by almost double to £9,000 per child per tax year.

Popularity
Over the 21-year timespan, ISAs have proved to be a popular investment choice for many; the most recently available government figures, which are for 2018-19, show that around 11.2 million adult ISA accounts and around 954,000 JISAs were subscribed to in the 2018-19 tax year, with new investments totalling around £67.6bn and £974m, respectively.

Long-term investing pays
Looking at some figures from a recent hypothetical example, if you had been in a position to be able to invest your full ISA allowance for each of the past 21 years (a total of £226,560) and this had been invested in the FTSE All-Share Index, your total investment would be worth more than £307,000 as at 6 April 2020. However, you should be aware that this figure excludes any charges or fees and past performance is not a guide to the future.

Regular investing also pays
If you can’t afford to invest the full £20,000, don’t be deterred. Figures from the same hypothetical example, show that an investment of £100 a month invested in the FTSE All-Share Index over 21 years (a total of £25,200), would be worth over £39,000 at at 6 April 2020, before charges and fees, taking into account the large market-hit from the pandemic this spring.

The value of investments can go down as well as up and you may not get back the full amount you invested.

The past is not a guide to future performance and past performance may not necessarily be repeated.

Key Takeways

• Individual Savings Account (ISA) was launched on 6 April 1999 and is now 21!
• ISAs have developed over the years, the annual allowance is currently £20,000
• Junior Individual Savings Accounts (JISAs) can be a good first route into investing
• JISAs can be opened by a parent or grandparent and anyone can contribute
• The child can’t access the cash in a JISA until they are 18
• The JISA annual allowance was raised to £9,000 in the March Budget
• 11.2 million ISAs and 954,000 JISAs were subscribed to in the 2018-19 tax year, representing investments of £67.6bn and £974m respectively
• Hypothetical examples show the benefits of long term and regular investing, but charges need to be taken into account
• Past performance is no guide to the future.