The UK, US and Canada might have their differences but they also have quite a lot in common – and we’re not just talking about the fact they all use the English language. The three countries also offer savings products that have quite a few similarities, and this article takes a look at what they are, using the British stocks and shares ISA as its starting point.
The idea behind the stocks and shares ISA (Individual Savings Account) is that it enables people to make investments tax-free. Each year, there is a limit as to how much can be invested in an ISA – for the 2011/2012 tax year, it is £10680. The money put into the ISA is then invested in the stock market or government gilts and corporate bonds. Any dividends that are earned are tax-free. There’s a wide selection of ISAs available on the market, and it’s a popular form of savings and investments in the UK.
So how does the investment ISA measure up against its international alternatives? In many ways, it is actually very similar to the Canadian TFSA (Tax Free Savings Account) in that it is a form of investment and there is no tax attached to the product. However, one key point of difference with the TFSA is that the ISA allows a person to save significantly more per year. Another key difference is that a person’s unused TFSA allowance can be carried over to the next year, which doesn’t happen with the ISA.
The US IRA is arguably even more different to the ISA as it is specifically for retirement, whereas the UK and Canadian products allow people to save for whatever they want and, generally, allow them to withdraw the money in them whenever they choose to rather than waiting for a specific date.
Also, ISAs are an individual savings option and while many US IRAs are the same, they also offer a group savings option that does not exist in the UK. However, one way in which they do compare is that there are quite a few different investment options to choose from so that savers can choose the one they think will suit them the best. For example, ISA investment rates vary. Some of them specify a minimum amount to save each month and others offer different investment options, just as IRAs do.
One thing that all of the products discussed above have in common is that they all offer tax benefits for savers, which is in contrast to many other forms of investment on offer. This means that they all offer potentially very good returns on investments, depending on the state of the market. Also, since they all involve investments, they also come with a risk attached because their success is dependent on the state of the market. However, as an example, the best stocks and shares ISA works hard to spread their risk to boost the potential for good returns for savers.
All of this demonstrates just how important good investment products are, no matter what country you live in – it also shows that multiple countries have seen the benefits of encouraging investments with tax incentives, and it seems safe to say that this is a trend that’s set to continue.