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ISA Investing Made Easy
Knowledge Is Power
ISAs are ‘Individual Saving’s Accounts’ on which you pay no tax for any gains or profits you make from the savings or investments in those accounts. The amount you’re allowed to put is limited, for 2021/2022 your full ISA savings allowance is £20,000 per adult and an additional £9,000 for Junior ISAs. You can divide up your allowance amongst the following categories of ISA products to build a savings pot that’s right for you. Keep in mind, if you don’t use your allowance this year, it doesn’t roll over to the next.
In simple terms, compound interest means that you earn interest income on interest you’ve already accumulated resulting in your savings growing at an ever-accelerating rate. As a basic example of the theory if you were to save £10,000 and receive 5% interest at the end of the year you will have gained £500. If you were now to reinvest the £10,500 at 5% again the following year you would have gained £525. The principle that your savings pot continues to grow at an ever increasing rate lies behind the theory of compound interest.
Einstein during his life said “Compound interest is the 8th wonder of the world. He who understands it, earns it, he who doesn’t, pays it.” If Einstein invested £5000 on his 18th birthday at 5% interest what would it be worth today?
Does The Theory Work?
In 1906 the prominent literary figure Jack London published an essay titled “What Life Means to Me” in which he referred to “compound interest” as a “remarkable invention of man” and in In 1972 the famous economist, John Maynard Keynes, said “compound interest is the second greatest invention of mankind”.
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