A history of ISAs – how they could help you today

The Individual Saving Account (ISA) was introduced at the end of the roaring 90s. Replacing the much-loved Personal Equity Plan (PEP) and Tax-Exempt Special Savings Account (TESSA), they were initially unpopular. Within just three months, Labour MP Quentin Davies even publicly slammed them as “a colossal failure”.

But he couldn’t have been proved more wrong. Within 12 months net ISA sales had reached an impressive £9 billion for that year, thanks to the exploding tech stocks and market hype.

It was more than half a decade before ISA sales would accelerate in a bull market again. Over the 2000s, the public focus was more on spending and less on saving – the honeymoon period for ISAs was over.

But this “live for the moment” sentiment abruptly ended with the 2008 financial crisis. As people felt the harsh reality of an economy in decline, a new kind of Britain was emerging. Building up a rainy-day fund became the top priority and ISAs were back in fashion. The tax-free limits increased, rising to £7,200 in 2008, to £10,200 in 2010, £15,000 in 2014 and finally £20,000 in 2017. ISAs had established their seat at the table – people saw them as an opportunity to grow their wealth.

ISAs have evolved and developed a new digital face. From e-trading platforms to robo-advisers, investing became more accessible.

The variety of ISAs has also expanded, with new ranges of tax-efficient products hitting the shelves since 2008. Starting with the 2011 Junior ISA and expanding to the Help to Buy ISA in 2015, Innovative Finance ISA in 2016 and Lifetime ISA in 2017.

Surviving global recessions, market overhauls, Brexit blunders and the governments of four prime ministers, the ISA has helped millions of people over the years to reach their financial goals and potentially live their dreams.

Why do you save and invest?

Whether you’re hoping to escape the daily grind and retire early, own a beautiful home or go travelling across the world, you’ll probably need a nest-egg. The money you have now is full of potential. What you chose to do with that potential is up to you.

You could live for the moment and spend it on a treat but this could make it harder to potentially live your dream. Or you could follow two thirds of Britain’s savers and keep your money in a Cash ISA. For the short term, this is sensible, especially to build up a rainy-day deposit for emergencies.

But, if you’re growing your nest-egg over the long term, you might find your cash savings aren’t growing as fast as how quickly prices are rising and inflation is eroding the value of your savings. For people who are looking to save up and grow their money for five years or more, a Stocks and Shares ISA could be a better option to consider.

How can a Stocks and Shares ISA help?

Investing your money helps to counter inflation, particularly if you invest in stocks and shares, rather than bonds or debt. Stocks and shares have tended to outperform bonds in the long run, but are more risky.

The generous tax benefits that an ISA brings means that you can keep more of your returns too, sheltering them from the tax man. You can put up to £20,000 this tax year into ISAs, where your money has the potential to grow free of UK income and capital gains tax.

Remember though tax rules can change and the benefits of investing in ISAs depend on your circumstances.

This article isn’t advice. If you’re unsure of the suitability of an investment for your circumstances, please ask for advice. Unlike cash all investments can rise and fall in value so you could get back less than you invest.

To help avoid too much exposure in any area or short-term losses, we think it is sensible to have a diversified range of holdings, and keep these for the long-term – more than five years. If you invest in globally diversified assets, it can help reduce your risk. Investments, like equities, bonds and property, perform differently in different market conditions. As do different regions and sectors. Having a mix can mean you always have something working well.

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Read more about diversifying in our 5 tips to navigate market storms article.

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Start your ISA this new tax year

The new tax year started on 6 April, meaning your ISA allowances have just reset – now could be the perfect time to kick start your ISA.

With a Stocks and Shares ISA, you can invest up to £20,000 this tax year and get relief on any returns, for Junior ISAs, it’s £9,000.

Opening or topping up an HL Stocks and Shares ISA is simple and takes a matter of minutes. It could help you get started in taking the steps you need to one day fulfil your lifelong dreams.

Read more about ISAs

Hannah Duncan is an investment writer, and founder of Hannah Duncan Investment Content, with years of experience producing content for global leaders in finance and retail.

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