WTF Is An ISA? Part 1 - BOD007

2:57Pete:this week's wanky word of the week

2:58Kate:this is actually the first wanky word of the week where I haven't even known the meaning of it

3:02Pete:so you've heard it because you help produce meaningful money

3:06Kate:yes and you say it a lot and every time I make a note I say I need to ask what that means

3:10Pete:and the word is

3:11Kate:rapper

3:13Pete:yo yo

3:17Pete:yes okay sorry for everybody

3:18Kate:who just got the ick then

3:20Pete:yeah rapper with a w right okay so

3:23Kate:god what's wrong with you

3:24Pete:I don't know why that popped into my head

3:25Kate:that's because all the rappers are going faux shizzle

3:28Pete:exactly all the kids doing that yeah right so rapper with a w so it is a bit of an industry word that yeah and you know we should probably avoid it except that it kind of serves a purpose so what a rapper is is a kind of an account so there are lots of different kinds of accounts right so obviously we know about bank accounts and stuff like that savings accounts so what a rapper is is think of it as a box that you can put money in. And there are a bunch of different kinds of boxes. And what differentiates one box from another is tax and access. So how it's taxed, when you put money in, while it's in there and when you get it out, and when you can get at it.

4:08Pete:So that's what separates one wrapper from another. But the word itself just means a place that you put money. So an ISA is a wrapper. So is a pension.

4:18Kate:I'm going to do a stupid Kate thing.

4:19Pete:No such thing, Carol.

4:20Kate:Oh, no, there is. is there yeah there is in this case so can this is you know when i talked about level one two three and adult adults and it's just like you had to roll with me on one of my weird brain things this is one of those can i call a rapper can i picture it as like a little box like a present and the

4:38Pete:wrapping paper is different yes and so those are the different rules like the pink wrapping paper

4:45Kate:is a pension and that's got certain rules because it's pink yes are you getting insight into how my brain works.

4:52Pete:Insight slightly frightened. At least stage of sort of being a sociopath perhaps. I don't know. No, we're all different, aren't we? And if it helps you to picture them like that, you know, pension is pink, alliterative, you know, icer is...

5:04Kate:Indigo.

5:05Pete:Indigo. Right, whatever. Do you know what I mean? But yes, they are different. But the thing that differentiates them is not colour because that's metaphorical. The wrapping paper. It's tax and access.

5:15Kate:Okay.

5:15Pete:So pensions and icers behave differently. They have different tax rules around them. You can get at them at different times and in different ways. So that's what differentiates one from another. But a rapper is simply a place to buy money.

5:26Kate:Okay.

5:26Pete:Simple as that.

5:27Kate:I have a feeling that's going to be one of my has Kate got it questions.

5:31Pete:Could be. It's not written down though.

5:32Kate:Is it not?

5:33Pete:I don't write them. Well no, I know you don't, but you write them down

5:35Kate:somewhere else normally.

5:36Pete:Yeah, I haven't done that this time. I'll be wigging it.

5:39Kate:Cool. So what was it? How you access it and the tax of it.

5:42Pete:Those are the things that differentiates one rapper from another. Right. There you go. One keyword of the week is done.

5:46Kate:Let's get straight into the basics of it. So, really simple. What does ISA, I-S-A, stand for?

5:52Pete:Individual Savings Account. To the point? Yeah, except that quite a lot of ISAs are not savings.

6:01Kate:Of course not.

6:02Pete:Could be investments. Well, that's true, actually. Which doesn't roll off the tongue so much. So ISA it is, but it's not just for savings, also for investing, as we'll get to down the line. That's what it stands for, Individual Savings Account.

6:14Kate:Cool. The next question we actually kind of covered in Wanky Road of the Week. What is an ISA?

6:18Pete:So, yeah, it's an account or a wrapper.

6:20Kate:Yeah.

6:21Pete:So it is a box in which you put money. It'd be great if it was that easy, wouldn't it?

6:26Kate:Yeah.

6:27Pete:But there are five types.

6:29Kate:Okay. This is going to be one of my questions too, isn't it?

6:32Pete:Yeah, there's five types of which three are the most important. So the most basic one is called a cash ISA, and that is simply a bank account, right, or a building society account. What makes it an ISA, though, is that any interest you receive is tax-free.

6:46Kate:so interest is an income so you should pay tax on it is interest on your bank account taxed

6:55Pete:potentially but the first thousand pounds of interest you receive in a tax year is tax free if you're a basic rate taxpayer so basically if you earn less than 50 i know if you earn less than 50 270 let's just call it 50 grand if you earn less than 50 grand a year yeah you are a basic great taxpayer probably. So if that's the case, then the interest you receive, the first £1 ,000 per tax year of interest you receive is tax free anyway.

7:21Kate:Yeah. And you're, I mean, you're not likely to, I'm really trying to process this because when I'm thinking about like my bank account and I look at the statement and it's like the interest I get, it's like 38p.

7:32Pete:Well, I'll put it in context. If you had£20 ,000 in a savings account and had 5 % interest, which is pretty high at the minute, then you'd earn£1 ,000 in interest. Got you, yeah. That's true.

7:42Kate:I keep a nominal amount in my spending accounts. I can't picture it.

7:47Pete:So you're talking if you've got more than 20 ,000, 30 ,000 quid in savings, with current interest rates, you might be earning 1 ,000 quid a year in interest.

7:54Kate:And anything over that is taxed.

7:58Pete:Yes. If you earn more than 50 ,270, call it 50 grand, it's a nice and round number, then you are a higher rate taxpayer. We're going to get into tax a few episodes. Is that, hang on, is it 40 %?

8:11Kate:tax.

8:11Pete:It is, well done.

8:12Kate:What? I've been listening to the meaningful... I haven't actually, I've just been producing them. I haven't actually actively listened to them as well.

8:18Pete:Yeah, so 40 % tax above 50 grand and then there is an additional rate at 45, which is over 127-ish thousand.

8:25Kate:I'm not there yet. You're not paying me that much yet.

8:27Pete:No, it depends how well this does.

8:29Kate:Yeah, right. So whilst we're on that note, please like and subscribe. Like and subscribe, exactly. Let's get Kate a high rate tax payer.

8:36Pete:You wish.

8:37Kate:Yeah, I wish.

8:38Pete:So So cash ISA. Cash ISA. Now, I don't generally think cash ISAs are really worth bothering too much, given that the first thousand quid of interest in even just a normal account is tax-free.

8:49Kate:So there's no point in having a cash ISA as well, just have a savings account?

8:51Pete:Yeah, unless you've got like tons of savings. I would just have a savings account. Okay. Because I think your ISA allowance, which we'll get to in a minute, which is maximum you can put in in any one year, is better used in a stocks and shares ISA, which is our second kind. Yeah. What a segue.

9:07Kate:Masterfully done.

9:08Pete:It's like I've done this before. Stocks and chairs ISA is a box in which you invest in things. We talked about investing last time, didn't we? Yeah. So that's as opposed to keeping the money in the bank and just earning interest on it. If you invest, you remember you buy stuff, which goes up in value.

9:25Kate:Gives you an income. Or both.

9:27Pete:Or both, right? So that's what investing is. So you can put stocks and chairs in a stocks and chairs ISA. Yeah, and I was going to say funds.

9:34Kate:You can buy funds to make they pick out the stocks and chairs for you.

9:38Pete:Yeah, we'll get into all that. We've got lots of stuff to go. We did do that a little bit, didn't we, last time? Yeah, we did cover that,

9:42Kate:but I think we'll probably go deeper into it next week, I imagine. So you've done cash ISO, you've done stocks and shares.

9:48Pete:Yes, so those are the first two. The other one that probably listens to this you really need to know about is lifetime ISO, which we'll dig into a little bit in a minute, add a bit more next week. That's a special one designed to help you buy a house, your first home, right? So there's a special allowance for that. So cash, stocks and shares, and lifetime, those are the biggies. There's a couple more. One is called an innovative finance ISO, I've never heard of that. Yeah, you probably never, ever need to think about it again. It's a weird special thing. The particular kind of investment you can put inside that is called peer-to-peer lending.

10:18Pete:I think it's a terrible idea. You should probably ignore it at all costs. Peer-to-peer lending is just a way there are websites set up that you can invest. Let's say you put in 10 ,000 quid, right? The website distributes your 10 grand across a bunch of people who want to borrow money, right? It sounds sketchy. It's not really. So you're 10 grand.

10:40Kate:I suppose you could argue that's what happens in bank accounts. They take your money to lend to people anyway.

10:43Pete:That's right. So essentially this is trying to cut out the bank, right? So it's trying to be the intermediary between you, the lender, investor, and the people who want to borrow. So it's usually for people who want to borrow relatively small amounts. Borrowing rates often higher than the banks. There are thereabouts. But there's less protection for investors under all that. It's a bit of an edge case, shall we say. So most people don't even know to go anywhere near it. Yep, that's not floating my boat. No, I'd imagine. And then the final one is a junior ISA, which is specifically for children.

11:15Kate:Yeah.

11:16Pete:Which we will allude to, I think, a little bit later.

11:17Kate:Yeah, that was one of my questions a bit later on. Okay.

11:19Pete:Five types.

11:20Kate:So five types. Cash ISA, stocks and shares, lifetime, main three. Yes. Innovative finance, which we can kind of just brush under the rug, and a junior ISA.

11:28Pete:Yeah, exactly. Cool.

11:29Kate:So why do I need one? Because the second I literally, within the week I turned 18, you sat me down. and you went, right, this is an ISA. You drew me a picture explaining how it worked.

11:40Pete:Was it a box?

11:41Kate:Yes. Funnily enough, maybe that's why. I remember it. And well, you're very good at explaining things anyway, hence this.

11:48Pete:Why we're here.

11:49Kate:But you sat me down and opened me up stocks and shares in a lifetime. So why did you do that?

11:58Pete:So if you're going to invest, which we suggest that you should, you save money for short-term stuff, really. money you're going to need in the next two years, maybe three years max, money you're saving for the long term, maybe to buy a house one day, maybe to retire one day, whatever, then that should be invested because it will grow. Yes. And what you want to do is make sure that it grows quicker than the rate of inflation. Remember, inflation is a drag on your money.

12:25Kate:It reduces how much you can buy with a given amount of pounds. Which is why it's fine for short term, but it reduces the spending power.

12:32Pete:It does reduce the spending power, that's right. Long term. But the thing about investing is that it goes both up and down, which we'll address, I think, a little bit more, I think, next week. So, look, the reason you should have one is if you're going to invest, you might as well do so tax-free. There's no point giving money unnecessarily to the government.

12:51Kate:No, there's not. That's right.

12:52Pete:And so if they give you an allowance, so a facility for not paying tax, you should use it. Most people only ever need two accounts. They need a pension and an ISA. Now if you're employed working for somebody else, you're in a pension anyway, you'll have been added to it automatically. You have literally just had your documentation.

13:09Kate:Yeah, and it was horrific. I opened my, honestly.

13:13Pete:Excessive.

13:14Kate:No, it was horrific because I'll tell you what, not the fact that I've been added into a pension, obviously, that's great. The horrific part was I opened it yesterday and it said, you know, date added to the scheme, date of predicted retirement, 2068. You're 22. that makes me feel

13:33Pete:you'll be 65

13:34Kate:that's disgusting first of all there's multiple things that's disgusting working for that long yeah well

13:39Pete:get used to it

13:39Kate:yeah and being that age

13:42Pete:being 65

13:43Kate:all of it I'm having a slight crisis about turning 23 next month yeah well

13:48Pete:you have to get used to it I've just gone 51 so there you go doesn't get any better

13:53Kate:cool great thanks

13:54Pete:65 is less scary when you're at 51 I have to say

13:57Kate:I suppose but on that cheery note

13:59Pete:where do we get to So saying how you open your workplace pension scheme. So most people only need two kinds of accounts, pension and ISA. If you're working for somebody else, you'll be in a pension anyway, or you should be, you should not have opted out of it.

14:11Kate:If you have, opt in.

14:12Pete:Yeah, exactly. But the other one is an ISA. So it just makes sense. It's this sort of universal, as long as you're living in the UK, it's the account that most people use to put on your pension. Nationally universal. Yeah. I suppose you could add a third account to that, which would be your savings slash emergency fund.

14:29Kate:Yeah.

14:30Pete:So short-term money, and then for longer-term stuff, pension and ISA.

14:33Kate:Yeah.

14:34Pete:So that's why you should have one. You can put in 20 grand a year into an ISA.

14:38Kate:Any specific one?

14:40Pete:That's your annual ISA allowance.

14:42Kate:So if you had a load of ISAs, all together you can only put maximum 20 grand?

14:48Pete:Yeah, that's your annual ISA allowance. So you can spread that across multiple ISAs.

14:53Kate:So can you have multiple of the same ISAs? Yes. So I could have three stocks and shares ISAs.

14:58Pete:Yes, you never used to be able to. Remember, the 20 ,000 is how much you can put in in any one year. It's not how much you can have.

15:05Kate:No, but if I have four stocks and shares ISAs, say, I could put five grand in each one for the year and obviously no more in any others.

15:13Pete:That's relatively recent, that. You never used to be able to do that. I was going to say, I don't think I knew that. You could only used to be able to put into one of each kind in any tax year, but it's just an unnecessary complication there, so they removed that. So 20 grand annual allowance, you can split it across ISAs.

15:25Kate:Okay, that's good to know.

15:26Pete:And then there is a little bit of nuance to how much you can put in. I think we'll probably get into that a little bit next week.

15:35Kate:So how is it different from that normal savings account? Obviously, we talked about time.

15:41Pete:Yeah, well, I mean, the interest is tax-free no matter how much. So if you had, say,£100 ,000 in a normal savings account, then you're going to be paying tax on the interest because it would be way over£1 ,000 a year. Whereas if you had 100 ,000 quid in a cash ISA, you would pay no tax no matter how much interest you get.

15:58Kate:So there's no limit at all?

15:59Pete:No. No limit on how much you can have in an ISA. And it's tax-free. So inside an ISA, both income and any growth are tax-free. So if it's a cash ISA, you only get income in the form of interest from a bank. It's all tax-free no matter how much it is. If you're in a stocks and shares ISA, then if you're invested, you might get dividends. I'm not sure if we talked about dividends. It's the income you get if you invest, right? And also any growth you make. So if your investments make money and down the line you sell them because you want to buy a house or whatever, then there's no tax then either.

16:34Pete:Whereas money invested outside an ISA there could be. So you should wrap as much into an ISA as you can.

16:41Kate:Because it's a great way for your money to grow without having to pay a tax on it.

16:45Pete:Yeah, it's an allowance. Governments offer these allowances to encourage people to save. right they're not doing it out of the goodness of their heart because they know that if you encourage people to save fewer people will be dependent on the state for benefits and stuff like that so they get at least as much benefit back than they give you for the allowance.

17:04Kate:Well yeah and things like stocks and shares keeps businesses going and

17:07Pete:well yeah exactly.

17:09Kate:Keeps the world turning

17:09Pete:It's the circle of life from a finance point of view

17:17Pete:It's a lot less romantic than the Lion King

17:19Kate:Yeah right

17:20Pete:but there is

17:21Kate:the circle of financial life

17:22Pete:yeah yes a lot oh crap

17:24Kate:yeah Elton John hasn't sung about that one he hasn't no

17:28Pete:for a very good reason although he's benefited from it

17:30Kate:yeah he's done it right so okay what let's so you said about how cash isa stocks and shares and lifetime are the main ones we need to focus on yeah so let's talk about the main differences between a cash isa and a stocks and shares isa yeah

17:42Pete:so it's simply what's inside right right cash isa is just a bank account right it just happens to be a tax free bank account

17:48Kate:so it's just a place to put your money

17:49Pete:A place to put your money, yeah. You know it's safe. It's not going to fluctuate. It's not going to go up and down in value. It's a bank account.

17:55Kate:So it's not linked to stock market.

17:56Pete:It's not linked to stock market or anything like that. You literally just get interest. And that interest is tax-free. Whereas in a stocks and shares ISA, if you are investing, you are buying stuff which goes up and down, produces an income. Or both. Yeah, or both, ideally. But they can go down as well and go up and down.

18:12Kate:Yes.

18:13Pete:And so you've got to just be aware of that. so what differentiates the stocks and shares ISA from a cash ISA is what's inside just to muddy the waters you can have with a lifetime ISA you can have a cash version and a stocks and shares one as well so you can have a I don't think I knew that yeah you can have a cash lifetime ISA I want to check what I've got yours is stocks and shares

18:31Kate:is it?

18:32Pete:yes

18:32Kate:actually yes I know that because it's Vanguard it is yeah got a Vanguard fund

18:36Pete:other lifetime ISAs are available of course that just happens to be

18:39Kate:the one that I've got not because I chose it because he did

18:42Pete:you're on HL actually but you're investing in the Vanguard fund

18:45Kate:yes yeah yeah

18:46Pete:so your box is by HL the wrapping paper

18:48Kate:provided by HL and inside of the present is a Vanguard fund a little Vanguard fund okay so yeah I didn't know that you could have a cash version of a lifetime iser that's really interesting but I suppose that has less capacity or the only reason only way that could grow is interest

19:07Pete:interest yeah yeah

19:08Kate:not

19:09Pete:not there's no investment inside a cash lifetime iser gotcha that's the difference lifetime isers are really important

19:14Kate:So let's talk about them. Yeah. Because they've been a big focus on my life recently.

19:18Pete:Well, they are, exactly, because you've been looking at houses and flats, possibly moving out, and you've been saving for the last few years into a lifetime ISA. And the stocks and shares, but yeah. I actually once interviewed the guy who invented the lifetime ISA, which is a very, very crap claim to fame.

19:35Kate:Yeah, that is. I mean, I'm sure he was a lovely, lovely man. What was his name? No idea. You can't remember his name?

19:41Pete:No, not exactly. that he's not famous because he came up with a lifetime ice. It's not exactly, it's not Brad Pitt, is it? So a lifetime ice, particularly important for younger adults. You have to be 18 to have one.

19:54Kate:Okay.

19:54Pete:Okay. You have to be under 40 to have one. You can't open one if you are under 40, if you are over 40 years old.

20:01Kate:Oh, I didn't know that. Interesting.

20:03Pete:And you can't pay into one after age 50. Weird little quirk.

20:07Kate:It's a weird little quirk. Especially since you can, well, I was about to say when you can access it.

20:11Pete:Well, the main point of them is to encourage you to save to buy your own home. Yeah. Here in the UK, we have a slight obsession with owning our own home, right? It sort of goes back to the 80s of Margaret Thatcher, where, you know, back then, a lot more people rented from their local authority.

20:30Kate:Yeah.

20:30Pete:What we would sort of colloquially call council houses. Yeah. But Margaret Thatcher gave, introduced a set legislation which gave people the right to buy the council houses they had been renting for decades often. And they got major discounts for doing that. And the whole point was that everybody has the right to own their own home. If you go to the continent, a lot fewer people proportionally own than do in the UK. It's rising. A lot more people rent and are happy to rent for life, right? So we have a bit of a thing about home ownership in the UK. It's fine. So the Lifetime Icer is designed to encourage people to do that.

21:03Pete:So the maximum you can put into a Lifetime Icer is£4 ,000 a year. and that comes out of your 20. So if you've got a lifetime milestone, you've put four grand in. You've still got 16 to play with. That's your maximum, 20 altogether, right? The reason why it's used to encourage people to buy a house is that the government will give you a bonus, and it's 25 % on whatever you put in.

21:24Kate:It's my favourite thing. If I manage to save up to four grand in the tax year,

21:27Pete:it becomes five grand pretty much overnight.

21:29Kate:They give me a grand.

21:31Pete:Which is not bad.

21:32Kate:It's amazing. Nobody just chucks grands around. No, there's a quid pro quarter to that.

21:37Pete:And you can...

21:38Kate:Oh, yeah.

21:39Pete:Yeah, right. So the flip side to that is that you can only access a lifetime ISA to buy your first home.

21:48Kate:Or when you're 65? Or after age 60. Oh, 60. Okay.

21:52Pete:So, you know, you might have people, if they're maxing out their pensions or whatever, they might use a lifetime ISA for retirement saving if they already own the home.

21:59Kate:But they can't put any more in after 50?

22:01Pete:No, exactly. But still, you know, it's an extra four grand you can potentially put aside every year. So 4 ,000 quid a year gets made up to 5 ,000. But I mean, you know, if you put 1 ,000 pounds in, the four grand is in the limit, right? If you only, in inverted commas, put 1 ,000 pounds in, you'll still get a 250 quid bonus. So 1 ,000 becomes 1 ,250. It's not bad, right? It's still really good. It's essentially free money.

22:23Kate:So what happens if I need to take it out for anything other than buying my first home or after 60?

22:30Pete:You pay 25 % of the fund back as a penalty. Now let's think this through, right?

22:37Kate:So if I...

22:37Pete:So if you put 4 ,000 in...

22:39Kate:Yeah.

22:40Pete:And the government gives you the bonus, that's an extra 1 ,000. So you've now got 5 ,000 quid in your lifetime, Issa.

22:45Kate:But I now have to pay back 20... Now, yeah.

22:47Pete:Now you want to take it out for a reason other than buying a house.

22:50Kate:Yeah.

22:50Pete:You've decided you really want to change your car, so you're going to use that money. Well, you have to pay 25 % of the value of your account. Well, 25 % of five grand is$1 ,250 as a penalty. So you would get out$3 ,750. So you've lost money. Understand the maths or not?

23:08Kate:Yeah, no, I do. I'm just processing.

23:10Pete:So$4 ,000 becomes$5 ,000 with the bonus. But if you take it out, you pay 25 % on the whole lot. So that takes you down to$3 ,750.

23:17Kate:I mean, I was about to say that's cheeky, but it's kind of not.

23:19Pete:Well, I kind of get it.

23:21Kate:given that it's designed for an incentive a specific purpose using it for another purpose being penalised it's a disincentive to do that

23:30Pete:they're trying to disincentivise

23:32Kate:it's good that you can access it if you absolutely need it

23:36Pete:that's quite a big drop yeah it is because if it's been in quite a while and it grows as well so it's just something to be aware of it's specifically intended for buying your first home or you can use it for retirement after age 60

23:49Kate:yes me and my lifetime ISA we are friends actually at the minute, but I'm checking it a lot.

23:54Pete:Because you're thinking about a house. Because I'm thinking about a house,

23:56Kate:whereas normally I check it like once a year.

23:59Pete:The, I think to say, so we're recording this back in February 2026. There is consultation about changes to the lifetime ISO. It's not decided yet.

24:09Kate:Okay.

24:09Pete:But they're talking about maybe removing the over 60 thing.

24:13Kate:So you can only use it for your first house. Yeah. What happens if that is the case? I don't know. and someone's already got their first house and they've got 35 grand in there?

24:25Pete:That's the question. That's why they're consulting on it. So they're asking the industry and the public as to what they think about that. Whether they'll take any notice or not. I don't think entirely, but that's just for folk to be aware of. Okay, good to know that there are some changes.

24:37Kate:And if there are some big changes, I imagine we'd do an episode on it.

24:41Pete:Oh, yeah, yeah, for sure.

24:42Kate:Okay, so we've talked about can we have more than one ISA? Yes, you can. When we talked about the five, you also said junior ISAs. Now, are they just for kids?

24:49Pete:Yes. so they most obviously most children don't have like income or money to pay into a junior riser for themselves so usually this is gifts from parents and grandparents and other families but yes you can pay up to 9 ,000 quid a year into a junior riser from the second they're born until they're 18

25:09Kate:what happens when they turn 18?

25:11Pete:well the money becomes theirs at age 16 but they can't access it before age 18

25:15Kate:so what's the point in that?

25:18Pete:Well, it's sort of saving for adulthood, isn't it?

25:21Kate:But why can... How is it theirs at 16, but they can't use a grade?

25:25Pete:It's just written into the law. That's how it works.

25:28Kate:Do you see why that makes no sense to my brain?

25:31Pete:Yeah, what you kind of need to understand is that children, minors, they don't have a lot of legal capacity. So, you know, that's why, you know, if, you know, God forbid, parents die there has to be a guardian if there isn't a guardian then the state will go into the state scheme because kids can't fend for themselves it's not like Victorian times when they had to you know we're in a civilised sort of social security sort of state so kids should be looked after no matter what you're thinking about that but essentially the money becomes it is technically legally owned by the child from 16 but they're not allowed to access it until 18 So there's quite a lot of people don't like junior ISIS because if you think about it, actually, let's just think about this, that would be a maximum of£162 ,000 could be invested for a child between them being born and 18.

26:32Kate:Which is massive, and by the time it's grown...

26:34Pete:Call it£350 ,000,£400 ,000, possibly more. Well, there's a lot of 18-year-olds could do a lot of damage with even 10 ,000 quid, let alone 100 grand. Now, my view is, I see on LinkedIn, I saw somebody in my profession really slagging off junior ice and saying what a terrible idea they are. On the whole premise that if you give an 18-year-old a big chunk of money, because you can't not give it to them, it's legally theirs.

27:00Kate:It has to have it, yeah.

27:01Pete:It's theirs. If you give that to a child, you know, a new adult, it's knocked on the microphone. If you give a new 18-year-old freshly minted adult a decent lump of money, they're just going to spank it on something they don't need. Now, I think that's very condescending.

27:18Kate:I'm glad you said that because that's really got my hackles up.

27:21Pete:Yeah, well, exactly.

27:22Kate:It's not to say that 18-year-olds are all intelligent. No. In the sense of, I'm sure there would be some that would spend it. Yeah, the issue is that you can't preclude them from spending it.

27:32Pete:It's their money. Now, you may want to, if your 18-year-old, God forbid, has a drugs problem, is involved with the wrong crowd or whatever, you just don't know. We all have good hopes for our kids, but you just don't know. But my view is that actually it's a brilliant vehicle for teaching children about money in a way that is not just theoretical.

27:55Kate:I suppose you could make it, if you include the children in its investment process from the beginning.

28:02Pete:yeah certainly from the point at which they're able to say it's 10, 11, 12 yeah but look

28:06Kate:this is what I've been putting in look I'm going to put this in for you and they watch it by that point they might even become protective of it this is something that

28:12Pete:yeah and I've heard people who will you know let's say they've got I don't know an 8 year old child who's mega into Disney

28:20Kate:or Pixar or whatever

28:21Pete:they'll buy shares in Disney and so not only are you you know watching Disney films you're buying Disney merch so not only are you a customer of Disney you're also an owner so they'll buy shares in Disney or Nike or Apple or whatever.

28:33Kate:Yeah.

28:34Pete:Right?

28:34Kate:It almost gamifies it, doesn't it?

28:36Pete:It does. And it kind of brings it home. And I think that's really cool. I think you should use them as a teaching vehicle. You know, and obviously do your best to raise kids so that they're not problematic at age 18. But we can't judge, right? You just don't know what's going to go on. But I think it's too binary. It's like junior ice is our bad idea because an 18-year-old will waste it. That's a nonsense thing.

28:59Kate:It'll be funny. have any if a 45 year old bloke was given 300 grand they're probably going to go I'm going to get a nice car well that's right

29:09Pete:I don't know what I can't remember what the proportion is of lottery winners that end up going bankrupt I want to say it's something like 1 in 10

29:15Kate:it's a ridiculously high proportion but I think it's just also a bit condescending to come from or they will spend it don't act like you wouldn't spend a bit of it too

29:22Pete:exactly I just think if you're going to invest for a child you should teach them about it use it as a teaching vehicle rather than

29:27Kate:just dumping it on them and suddenly

29:30Pete:Yeah, so junior icers are great. Nine grand a year. Yeah, kid owns it from 16, can't access till 18, but then it's theirs absolutely. It's theirs to do with as they want.

29:40Kate:Okay, so there's no sort of penalties for taking it out? Nope, no, no. Tax-free. Can they add to it when they're an adult?

29:46Pete:It can become like a normal icer at that point. It stops being a junior icer. Okay, that's good to know.

29:52Kate:All right, the last little section we've got now before we get into the Has Kate Got It is choosing the right one. how do I know which ISA is the best for me? Because I was lucky you kind of sat me down and said these are the ones you should probably go for.

30:05Pete:Well, yeah, I probably wouldn't. You know, at age 18 I wasn't going to sort of necessarily go into like a comparison site and look at all that. I was going to kind of pick for you but explain what we were doing. So cash ISA, the way you would choose one over another is down to interest rate primarily. You know, you pick one that will pay you more interest. That's basically it. That's the only thing that differentiates one cash ISA from another. It might be easier to open a cashizer with your own bank, so you've only got one app to log into, whatever. But if you want to get a little bit more interest rate, you might have to open one with another one.

30:37Pete:That's the only reason that you would really differentiate those. With stocks and shares, it's an investment thing, right? So you've got what investments are available underneath, what are the costs. Can you hear the seagulls? I wonder if the seagulls. Just realising we've left the window open, so there's a little bit more noise.

30:52Kate:Well, the thing is, you've got headphones and I don't. So I don't know what you can or can't hear.

30:56Pete:Yeah, I think you might have been able to hear the seagulls there.

30:58Kate:Well, we live in Cornwall. What's new?

31:01Pete:So we've got, yeah, costs of running an ISA because there's always costs involved. It was expressed as a percentage. So you're with Hargur's Land's down. They've just changed. I'm not 100 % sure what the current pricing is. It always was 0.45 % a year, right? So if you had 1 ,000 quid in it, you'd pay 45 quid a year. Okay. Right? £4.50. Good maths.

31:22Kate:I didn't even question it. No, no. It's just as bad, really.

31:25Pete:It's 0.45, yeah. yeah I'm good anyway whatever it's one of those I just like you know when you doubt your mental arithmetic generally pretty good at percentages yes exactly there you go this much on a thousand pounds right then also the fund you're invested in there's charges for that so one of the you would choose one ice or over another based on maybe what it costs you to own it the different choices of investments but to be honest I wouldn't lose too much sleep over that particularly not when you're getting started why are you smiling

31:52Kate:because the seagulls are going mental

31:55Pete:it's alright

31:55Kate:and you're smiling you know with the love I have for my dad oh good what okay so yeah

32:03Pete:those are the actually a really good site called boring money which is like a comparison site okay so we'll put a link

32:08Kate:to that I think we've mentioned that before actually

32:10Pete:yeah a friend of mine called Holly Mackay set that up she's great cool

32:13Kate:I will put a link to that in the show notes yep so can I switch ICES if I change my mind can I switch them yeah

32:23Pete:so you can pay into multiple ones per year. So let's say you pay into one between, tax year starts on 6th of April, so you pay into one between April and November, then you decide you want to pay into a different one. That's okay. You don't have to leave money in an ISA that you don't really think much of anymore. You can transfer it to another provider.

32:42Kate:All of it? Do you need to leave some of it in there?

32:44Pete:You can do partial transfers, you can do complete transfers.

32:46Kate:Okay, so it's not like one of those things where you have to have at least a tenner in there or something?

32:49Pete:No, well, there may be, but it'll be fairly nominal. But you can transfer. What you need to do though is, A transfer is different from taking the money out and putting it into another one. If you do that, you lose the ISA wrapper around the money. So let's say you put 1 ,000 quid into an ISA and then you decide, I don't want it in that one, in ISA A, I want to put it in ISA B. If you take it out into your bank account and put it into ISA B, you've lost the ISA and you've used 1 ,000 quid of this year's ISA allowance because you've put it into a new ISA. Whereas if you transfer it directly from ISA A to ISA B, you haven't used any of this year's allowance.

33:24Pete:So you would do that how? You'd open an ISA with provider B and request it.

33:30Kate:And then the two providers talk to each other.

33:32Pete:Yes, they talk to each other and the money goes direct.

33:33Kate:Okay, all right. Super easy. Okay, cool, that's good to know. How do I actually open one? Is it all online? Is there, you know, ISA buildings?

33:43Pete:Yes, you walk into your local ISA shop. Yeah, I'm trying to think what would the logo be of an ISA shop.

33:51Kate:I picture like, I don't know why my brain's done this, but you know like the big purple Dr. Doofenshmirtz from Phineas and Ferb building? Really, really tall. Purple and it's got like a... I need to show you this. Yeah, okay.

34:08Pete:Yes, I imagine that's what it does look like.

34:10Kate:It's kind of like tall and imposing and purple.

34:12Pete:You need to put that in.

34:13Kate:Yeah, I'll insert a picture of Dr. Doofenshmirtz from Phineas and Ferb's building.

34:17Pete:There you go. That's what a nice shop looks like. No, just online. So pick one, open it online. Honestly, yours is with Hargreaves Lansdale. You can open an iPhone on Hargreaves Lansdale in, I think, 90 seconds. Yeah, I remember it being very easy.

34:31Kate:I remember, I think Hargreaves Lansdale isn't necessarily the cheapest provider, but I have...

34:36Pete:No, they're the biggest platform, though.

34:38Kate:Reliable, safe, and it is super easy to use. So, yeah, that's, I guess, the protocol. Great platform.

34:45Pete:Others are available.

34:46Kate:Others are available. Right, my iPad is being turned off and being placed onto the table. I don't actually have high hopes for myself today.

34:54Pete:Well, you're not feeling A1, are you?

34:55Kate:I'm not feeling A1, that's true.

34:57Pete:Can you name the five types?

34:59Kate:Yes, I can do that.

35:00Pete:Okay.

35:01Kate:So it's stocks and shares, cash, lifetime, junior and innovative finance.

35:06Pete:Well done, which we largely ignore.

35:08Kate:Which we just brush under a rug.

35:09Pete:Yeah, we do. What differentiates one kind of wrapper from another?

35:14Kate:The amount of tax you pay and how you can access it.

35:18Pete:Tax and access, very good. Can you have more than one kind of ISA?

35:23Kate:You can.

35:23Pete:You can.

35:24Kate:And you can pay, your allowance is 20 grand a year, tax year.

35:29Pete:How much can you point to a junior ISA for a child?

35:31Kate:Nine grand a year.

35:32Pete:Well done, that was a bit niche. Good, yeah, good. That's pretty good. You've got that, I think, this week. I've got the base level.

35:38Kate:So we've gone quite, not high level, but we've gone with the basics for ISAs.

35:44Pete:Yeah, there's a bit more to get into. We'll do that next week, I think.

35:47Kate:Yeah. Okay. So that's really cool. Okay, so, I mean, I can't lie, the word ISA sounds a bit weird. in my head now.

35:52Pete:Yeah, you say something a million times, it just becomes meaningless. Yeah, it does.

35:56Kate:Oh, one thing I was going to actually clarify, sometimes you hear people say Lysa, Jysa, that's Junior Isa, Lifetime Isa. I know you hate it, but it's good for people to hear it. That's what we're talking about.

36:07Pete:Actually, the one I really hate is when people call them Lysas.

36:10Kate:That's just incorrect.

36:11Pete:I mean, it is L-I-S-A. I know, it's correct

36:12Kate:as the name, but it's not the name.

36:14Pete:Yeah, people say Jysa and Lysa, Junior Isa, Lifetime Isa. It just makes me clean.

36:18Kate:I had, yeah, that's okay. It's really not that deep. But that was going to be my, yeah, my mental note was to just clarify that that's what, when you hear Lysa and Jysa, that's Lifetime Isa and Junior Isa. Okay, cool. So I would say I've got a better knowledge, actually. I thought I was pretty, I thought I had a good knowledge of Isas already, but you've definitely taught me.

36:38Pete:Now you know what a rapper is.

36:39Kate:Yeah, know what a rapper is and just kind of, I kind of could have maybe guessed from context, but actually knowing what it means is good.

36:45Pete:Yeah, it's a bit of a meaningless word in it, really. But do you know what I mean? It's just one of those things that's kind of evolved.

36:50Kate:So if people hear it in the context, they know it. So that's really good.

36:55Pete:So we've got quite a bit more to cover. That's coming next week. A little bit more about rules you need to follow, investing, stuff like that. So a bit more on ISAs next week. So stay tuned for that.

37:04Kate:Yes. So in the meantime, if you've got any questions you would like to ask, we've had a few come in so far, which has been really nice.

37:10Pete:Thank you. Keep them coming.

37:11Kate:For the most part, what I've been doing is either replying to them or saying, great, we're going to cover this in an episode. So please do send them in at hello at, I was about to say meaningful money, that's so funny, hello at bankofdad.show and just put the podcast question in the subject line so that we can clarify what it is when we're looking through the inbox.

37:34Pete:That's it, isn't it?

37:35Kate:And we did have a couple with the boring money link that will be in the show notes. Which is bankofdad.show slash episode 7.

37:45Pete:Episode 7. bankofdad.show slash episode 7 we'll make sure the links are in there and that's it isn't it?

37:50Kate:Yep please feel free to like and subscribe it really helps us out leave us you know comments, reviews Exactly

37:56Pete:and if you can leave a review like on Spotify or Apple Podcasts wherever you're listening to this that really helps us out 5 stars please you know we do appreciate it because it helps keep us near to the top of the rankings I mean we're well over a thousand subscribers on YouTube We are

38:10Kate:we're approaching 1 ,100 now I think we're on 1 ,093 or something

38:14Pete:So thank you for subscribing me please comment just let us know how we can help we're having fun doing this we are we're

38:19Kate:enjoying watching we're both watching and reading all the comments seeing how best we can do this

38:24Pete:so good cool that's it so thank you for listening and watching and we'll see you next time