The benefit of investing in an ISA over the long-term

It may seem sensible that the longer you hold an investment for, the better the opportunity for growth you have. You would be right in many ways, but of course the more success you have with the return on your savings, the more tax you will be subject too.

The ISA is a key way of being able to mitigate against paying tax, in that it protects you against both income and capital gain taxes.

So, when you consider the importance of compound growth, where the income is reinvested and you receive increases in your capital, by not having to pay tax over the years, you are able to reinvest all the returns within the account.

It also means that when you need to take any benefits from your savings, you do not need to worry about any tax too. This may be the underlying natural flow of income created or returns of lumpsums of capital. By not having to consider tax implications, you can be more flexible and not need to disinvest ahead of time.

It is also important to understand that with the current annual allowance at £20,000 per person, if you can continue adding to the ISA over the long-term, you increase your chance for growth and stronger returns. This means you could add £100,000 in a five-year period, double that as a couple using both your allowances.

By then allowing this to grow, you will also start to receive growth on the earlier growth, and hence the long-term benefit of investing in your ISA.