JARGONBUSTING Part 2 - ISAs, Interest and Funds
Do you know your ISA’s from your JISA’s? Your SIPPs from your SSAS? Or is it all Greek to you?
There is a lot of jargon out there which can leave you feeling confused, here we explain some of the most common terms in investment to help you begin your investing journey.
The snappy acronym for the less snappy ‘Individual Savings Accounts’. ISAs are a great tax-efficient way for you to save money. Cash ISAs, are savings accounts which allow you to earn interest on your savings without paying any tax on the interest earnt. Stocks and shares ISAs are investment accounts, where in addition to tax exemptions on interest earnt any profits made on your holdings are not subject to capital gains tax. You can put up to £20,000 per tax year into an ISA and can have more than one ISA as long as you do not exceed the £20,000 yearly allowance.
Is the return earnt by lending money or the rate received on your cash holdings. One of the most important terms in investment is compound interest, this is the process of earning interest on your interest and has a significant impact on your returns. Let’s look at an example, if you put £10,000 into a savings account with an interest rate of 2%, after one year you will earn £200. If you leave the £10,200 then in the second year you will have £10,404. Over two years this may not seem like a lot but say you were to leave this for fifteen years you would have £13,459 – that’s £459 more than if you took out the £200 each year over the period.
Are also known as collective investments, where individuals can give their money to a fund manager who will invest your money for you into a range of assets. Funds allow investors to pool their money together, which the fund manager will then invest on your behalf. One benefit of collective investments is that it enables you to invest in a wider range of investments than buying individual equity holdings yourself. It is worth remembering that there is of a cost involved, as the fund manager will take a fee for managing the investors’ money.
This guest blog post was written for the Female Investor Network by Alice Wright and Rebecca Jones at Investec Wealth and Investment.