Saving & Investing


If you've money to spare, you can save and/or invest it. With saving you put your money aside without risk, usually with the chance to earn interest. With investing, there's potential for your money to grow more, but the returns aren't guaranteed. Investing is generally more suitable for the longer term.

Main types of investment products

Shares

When you buy shares you buy a stake in a company. If the company does well the value of the shares may rise and you may be able to sell them at a profit. You may also get a share of the profits through income payments called dividends. If the company doesn't do well, you may not get any dividends and the value of the shares could fall or, in some cases, cease to have any value at all.
Pooled or collective investments
Pooled or collective investments are where small contributions from lots of people make up a single investment fund. They include:

  • Authorised Unit Trusts
  • Open Ended Investment companies (OEICs)
  • Investment Trusts
  • Exchange Trade Funds
  • Unit linked life assurance
  • ISAs (see next section)

Individual Savings Accounts (ISAs)

An ISA offers tax-free returns. It can be made up of cash, and/or longer term investments like stocks and shares or insurance. You don't pay tax on the interest or dividends (investment income) from an ISA, apart from the 10 per cent tax credit which is deducted from dividend payments before you get them. You also don't pay Capital Gains Tax on gains (profits) from investments in an ISA.
There are limits to how much you can pay into an ISA each tax year.

How much tax will you save?

Interest from savings:

  • if you pay tax at the basic rate, outside an ISA you would usually pay 20 per cent tax (2009-10) on your savings interest
  • if you pay tax at the higher rate, outside an ISA you would usually pay tax at 40 per cent on your savings interest
  • if you pay the 'saving rate' of tax for savings, outside an ISA you would pay tax at 10 per cent on your savings interest

Dividend income

  • if you're a basic rate taxpayer inside or outside an ISA you pay tax at 10 per cent on dividend income; this is taken as a 'tax credit' before you receive the dividend and cannot be refunded for ISA investments
  • if you're a higher rate taxpayer you would normally pay tax on dividend income at 32.5 per cent; in an ISA you won't get back the 10 per cent dividend tax credit element of this, but you will save by not having to pay any additional tax

Capital Gains Tax savings

If you make gains of more than £10,100 from the sale of shares and certain other assets in the tax year 2009-10 you would normally have to pay Capital Gains Tax. However, you do not have to pay any Capital Gains Tax on gains from an ISA. (But losses on ISA investments can't be used to reduce Capital Gains Tax on gains from investments outside the ISA.)

Bonds

Bonds are loans to a company, a local authority or the government. They pay a set amount of interest and are traded on the stock market, so their value can rise or fall.

If you have reached the point where you need to start saving more, or just need to start saving,
why not contact us for some help and advice?

CPS Financial Solutions