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Tax on savings and investments: discover ways to save tax-free

How can you save and invest without having to pay tax on it?

What are tax free savings and are they worth it?

While the Personal Savings Allowance has simplified tax-free savings and investment to some extent, there are several products that can make it even easier to save or invest tax-free.

Let’s explore some of the most popular types of tax-free savings accounts.

What savings accounts are tax-free?

Cash ISAs

You can put up to £20,000 into a cash ISA this year and you won’t have to pay tax on the interest you earn.

There are lots of companies offering cash ISAs that work just like normal savings accounts - with instant access to your money, debit cards and online banking.

The downside is that cash ISAs tend to offer relatively low levels of interest, so if you’re investing for a long term savings goal you might consider a cash ISA of little interest.

Stocks and Shares ISAs

Just like a Cash ISA, you can put up to £20,000 into a Stocks and Shares ISA this year and you won’t have to pay tax on the growth of your investment.

Investments tend to generate higher returns than cash savings over the long term, but the value of stocks and shares can rise and fall, so it is more risky than a Cash ISA.

Our Stocks and Shares ISA invests in a choice of two climate-friendly funds, that help to diversify your investment.

Junior ISAs

If you’re saving on behalf of a child, a Junior ISA is an ideal way to invest in their future. In the current tax year you can put up to £9,000 into a Junior ISA. This can then be held in cash or invested in stocks and shares for long term growth. For example, our Junior ISA invests your money in stocks and shares.

Once the child turns 18, they will then be able to access the money or to re-invest some or all of it in our Stocks & Shares ISA or Lifetime ISA.

Lifetime ISAs

A Lifetime ISA is designed to help people save for their first home or for retirement.

Lifetime ISAs are only available to those under the age of 40. You can put up to £4,000 into a Lifetime ISA in the current tax year and benefit from a 25% government bonus top up. However, you will only keep this bonus if you use your Lifetime ISA to buy your first home, or for retirement when you are 60 or older.

If you do withdraw money from your Lifetime ISA for anything other than buying your first home or for retirement, there is a penalty in place. This could mean you get back less than you put in, should you choose not to use it for its intended purpose.

A Lifetime ISA can be saved in cash or invested in stocks and shares, so you can benefit from growth in the value of your investment as well as the 25% government bonus. Just remember: there is always a risk that the value of your investments could fall.

Our Lifetime ISA invests in stocks and shares through a choice of two climate-friendly investment funds.

Don’t forget your pension - it’s still one of the best ways to make tax-efficient savings for your retirement.

Tax Exempt Savings Plans

Tax Exempt Savings Plans are savings products that are only offered by friendly societies like us.

With a Tax Exempt Savings Plan you choose how long you want to invest for, typically ten years or more, and payments are fixed.

When the policy ends (or 'matures') you receive a tax-free lump sum as long as all the payments have been met.

Our Family Bond and Junior Bond are Tax Exempt Savings Plans that invest in stocks and shares. You can invest up to £25 per month or £270 per year and as long as you keep up payments you - or a child - will receive a tax-free cash lump sum when it matures.

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