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There are two types of ISA accounts available from banks and building societies; cash ISAs and stocks and shares ISAs. A cash ISA is widely used for personal savings; those moments where you’re saving some money for a rainy day. However, stocks and shares ISAs are different. The principle of an ISA remains the same, but this account type carries a higher degree of risk with the potential of a bigger return. So, what should you consider when you’re applying for a stocks and shares ISA? As a taxpaying citizen in the UK, you are entitled to an ISA savings account. This type of investment is different to a standard saving account as it allows you to protect the interest you earn from your assets from taxation. This is in contrast to traditional alternatives where you will lose a portion of the interest earned from investments and savings to capital gains tax or income tax. Stocks and shares ISAs also protect the interest rate of your investment from the taxman, but they do carry a risk. When you create one of these accounts, you will essentially be investing your savings in various funds. This means that the amount of return you receive is dependent on the current state of the stock market. Although you could see a far greater return if the market is performing well, your assets could also depreciate over time. You should assess your options carefully to see if this is the best ISA for you. To apply for a stocks and shares ISA, you must be a citizen of the UK or a member of the British Armed Forces who is currently stationed in another country. With a cash ISA, you only need to be 16 years of age to apply. However, for a stocks and shares ISA, you must be 18 because of the elevated risk. It’s also important to remember that you cannot apply for a joint ISA. Any type of ISA can be registered for in the name of one person only. Until the end of this tax year on April 5th, the current limit on ISA accounts is £10,200. This limit can be spread across the two formats of ISA if you so wish. For example, the cash limit on an ISA account is half of the total limit; £5,100. So, you could split the usage of your ISA down the middle; using half for cash savings and half for stocks and shares if you wish. A cash ISA is regarded as a personal way of saving money, and most banks or buildings societies will allow you to terminate the account at any given time. With stocks and shares ISAs, this isn’t quite the case. Because you are investing into funds and shares, this type of ISA account is looked at as a long-term savings option; with a medium range commitment being five years on average. Do you intend on continuing your ISA account for a prolonged period of time? Bear in mind that the stock market is known for its deviation and frequent change, so you must be prepared to go the distance when you compare ISAs like this. A stocks and shares ISA works on the basis of your account receiving a share of any profits made by the fund you have chosen to invest in, or if the fund should grow. There are numerous investment options to choose from, so you have to think about which option to select. You have two main fund options to decide between: active and passive. An active fund is run by what is known as a fund manager. This individual will oversee your investment and decide where the greater opportunities are for potential return. The fund manager will then make the decisions on holding or selling the shares that your ISA possesses. It is suggested that with this manual method of managing the investment, your stocks and shares ISA will perform far better, but this isn’t always the case. If you have stumbled upon a very knowledgeable and focused fund manager, then the odds are your stocks and shares ISA will be successful. However, it is always possible that the fund manager you use could underperform of make the wrong decision, therefore losing you money. It is a tough call, and one that should be well investigated in order to find you the best fund managers available. You will be able to assess their integrity through the factsheets that you will receive prior to completing an application for an ISA pertaining to their fund. There are also some additional charges that you will have to pay if you invest into an active fund. Firstly, there is an average initial charge of 5.5 per cent on your first investment. However, this could be lower if you use a discount broker or fund supermarket. Secondly, you will encounter an annual management charge of around one to 1.5 per cent, which fluctuates depending on the fund management company you are using. The second type of fund that you could choose to invest in is a passive fund. Unlike the active fund, this format does not feature manual control from a fund manager. Instead, a passive fund will use what is known as an index tracker. The index tracker will feature a compilation of companies that are taken from the stock market and will automatically invest in all the companies featured on the index. A passive fund type is cheaper than an active fund, simply because there are no payments that need to be made to the fund manager and less expense overall. However, due to the automated routines of the index tracker, you will never be able to outperform the market like you could do with a fund manager and an active fund. This means that it’s important to decide on what your expectations of your stocks and shares ISA are before you progress. It’s important to remember that investing in a stocks and shares ISA is a long-term commitment, and one that requires a high degree of preparation and research in order to get the best out of it.

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If you have a private pension or company pension you are likely to have some decisions to make when you retire. You will be asked whether you would like to take a cash lump sum and what you would like to do with the remaining pot. As with any investment you should take the opportunity to research about the plans.