There are plenty of ways we can think of putting our money to good use; so the fact that we end up handing over an enormous chunk of it to the taxman every year tends to rankle. However, if we thought a little bit more about how we save and invest, we could save an incredible £1.3 billion in tax between us.
And this isn't through complex and controversial tax-avoidance schemes, it's through the government-approved ISAs.%VIRTUAL-SkimlinksPromo%
The word itself stands for Individual Savings Accounts. However, it's important not to get bamboozled by the jargon, because essentially an ISA is just a wrapper which gets put around things you already know well - like bank accounts. The product inside is exactly the same - all the wrapper does is save you tax.
ISAs were introduced in 1999, but there's still plenty of confusion surrounding them, so it's worth getting to grips with the basics.
There are two types of ISA. The first is the most straightforward - the cash ISA. These are exactly the same as savings accounts. However, instead of having to pay your highest rate of tax on the interest (which is 20% for basic rate taxpayers, 40% for higher-rate taxpayers and 45% for additional-rate taxpayers), there's no tax at all on the interest.
Just as with normal savings account, there are a number of varieties to choose from. There is the simple instant-access savings account, there are ones which have fixed rates and you have to save into them for a set period of time, and there are ones where you have to give notice of any withdrawal.
All you need to do is pick the type of account that suits you, search for the best rate, and open an account. You won't have to pay a fee to open a cash ISA.
Stocks and Shares ISA
The second type of ISA is known as a stocks and shares ISA - which is for more long-term investments, and invests in the kind of things which can go up in value - but can also go down.
Instead of investing in cash, these go into a number of things such as shares and bonds (which is where you lend money to a company and they pay you interest).
How you invest in these things is entirely up to you. The simplest way is through a fund: you pay money into the fund, where it is mixed with money from thousands of other investors, and then an expert fund manager will decide the companies they want to invest in.
This has the advantage that you don't have to know which are the best companies to invest in, you just need to decide on the type of fund you want - whether that's one that invests across the world, focuses on specific industries or aims to do something specific - and take a medium-amount of risk. You can then research the most recommended funds in this sector, read the prospectus to ensure it suits you, and invest.
Most people will buy funds through a fund supermarket. They will charge a fee to set an ISA up and invest for you, but it tends to be cheaper than going direct to the fund management company. It's worth checking the fees of a number of these supermarkets before picking the one that's best for you.
If you're more of an expert, you can set up a stocks and shares ISA through a platform, and then use it to invest in a huge range of things, from shares in specific companies, to a whole range of funds and investment trusts.
These aren't entirely tax-free, but there are some tax advantages.
There's no tax on profits. If you invest in shares outside an ISA, you can only make a certain amount of profit in any year before you have to pay tax (£10,900 this year). If you make more than this, basic rate taxpayers pay 18% and higher rate taxpayers 28% in capital gains tax. Inside an ISA there's never any tax on gains, no matter how much you make.
There's also no tax on the interest earned on bonds, and there's a 10% tax on dividends. Basic rate taxpayers only pay 10% on dividends outside an ISA anyway, but higher-rate taxpayers pay 22.5% and additional-rate taxpayers pay 32.5%.
Every year, starting on 6 April, you get an allowance to invest in ISAs. This year the overall limit is £11,520. If you don't invest during the year your allowance disappears.
The annual limit is worth taking some time to understand. You can invest all of your annual allowance in stocks and shares. Alternatively you can invest up to £5,760 in cash, and the remainder in stocks and shares.
If you use your cash ISA allowance you don't have to use the stocks and shares one too, and you don't have to invest the full £5,760 to take advantage either.
Moving your money
ISAs are not fixed term products, so they will roll on until you take the cash out. As soon as you withdraw anything at all from your ISA, that part of your allowance will disappear.
If you decide to move between savings accounts or funds, it's important not to cash in your existing investment - or your allowance will disappear. You need to contact the provider of your new products and tell them that you want to make a transfer; they will go through the process properly with you.
Once you get your head around ISAs they are nowhere near as complex as they first seem. They're just a great way to save or invest exactly as you would do anyway - but save a fortune in tax while you're at it.
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ISAs: a beginner's guide to understanding ISA accounts
Mortgage rates are low at the moment, but even if you feel that your mortgage is a pretty good deal already, for a lot of borrowers there are better rates to be had. It's crucial to get the sums right – high upfront admin costs from a new lender or large early repayment fees from your existing mortgage provider could wipe out any savings. But, says David Hollingworth of brokers London & Country: "If you have an average standard variable rate (SVR) of 4.75%, a borrower with a £150,000 repayment mortgage over 20 years would pay £969.34 each month. Switching to a two-year fix with Norwich & Peterborough BS at 1.99% with £295 fee, free valuation and free legal work for remortgage would cut the payment to £758.11 a month, saving £211.23p.m." Over a year, that would mean a saving of £2,240, even with a £295 up front fee, and £2535 in following years. Potential saving: £2,535
Your home and contents insurance may be costing more than it needs to. Gocompare.comdata shows that 25% of customers who provided their buildings and contents insurance renewal price saved up to almost £160 by changing to a new provider. Potential saving: £160
With today's high cost of fuel, running a car is an expensive business. For a lot of people, particularly where public transport is sparse, giving up a car altogether is too big a challenge. But perhaps you could use it less, and take steps to bring down the cost of driving when it's unavoidable. The Energy Saving Trust says that just keeping your tyres pumped up correctly can save £31 a year, and turning off the air conditioning can save £77. Follow all the advice on the Energy Saving Trust's app, such as lift sharing and keeping your speed down, and the organisation claims you could save as much as £554 a year for a medium car covering medium mileage. Potential saving: £554
If you haven't changed car insurer recently, the chances are you could save a lot of money by doing so now. According to research from Consumer Intelligence for Gocompare.com, in October 2013, 51% of consumers could save up to £242.55 by moving to a new insurance provider. There are plenty of comparison sites to try, including AOL Compare, so it really doesn't take long to find a cheaper deal. Potential saving: £243
Start by finding out whether you could get a cheaper deal from a different energy supplier. If you haven't changed in the past, you probably can. According to gocompare.com, you could save around £309 a year just by switching to a cheaper deal (based on customers who switched energy supplier for both gas and electricity (dual fuel) using the Energylinx poweredGocompare.com platforms between 1 July and 30 September 2013).
Over the long term, there are plenty of ways to bring down bills that involve a relatively large outlay up front, such as ensuring your home is properly insulated. But just cutting your current energy use can have a huge impact on your energy bills. Some of the steps you can take are just a question of habit changing, such as switching appliances off instead of leaving them on standby. The Energy Saving Trust reckons the average household could save £50 and £90 a year just by unplugging or switching off at the socket. And turning down the washing machine temperature to 30 degrees, using a washing up bowl instead of leaving the tap running and only putting as much water in the kettle as you need can save you as much as £55 a year. Draught-proofing will save another £55, and proper 270mm loft insulation could save you up to £180 a year – taking into account the cost of fitting it the savings will take a couple of years to kick in. Potential saving: £689 (far more if you take all the right steps in the home)
Or at least, make your own. If you work in a town or city, the temptation to pop in and get a coffee can be strong. There's something comforting about sipping a hot coffee from those nice warm paper cups as you gear up for the working day. But if you stop to add up what it costs (including the cup), it may leave you cold. A Starbucks medium (OK, tall) latte costs £2.60 on the Strand in London. If you have one of those five days a week, 46 weeks a year (allowing for four weeks holiday), that means you are spending close to £600 – a tall price for a caffeine fix. If you make your own, a Bodum coffee maker costs £20 and a kilo of coffee costs around £13 and will make roughly 120 – 140. Missing the cup for the walk to work? Buy a Thermos mug for around £10. For £43, plus the price of milk, you can have coffee on the go all year round. Potential saving: £557
It's a familiar scenario for many well-intentioned would-be gym bunnies. You sign up super motivated. You buy new workout gear, perhaps you work out regularly at the start. But then something – a holiday, a nasty cold, late nights at work – breaks your momentum and you stop going to the gym. Eventually your workout clothes lounge around in the cupboard while the gym keeps your bank balance trim by taking that direct debit each month. Gym memberships vary, but if you pay £80 a month for full membership, that's £960 a year's worth of good intentions. Invest in some proper running shoes – you can spend a fortune but specialist shop Run and Become has decent shoes for £50 – and hit the road. Need motivation? Download a free app such as Couch to 5k to get you started and track your progress as you get fitter. Potential saving: £910
The range of mobile tariffs can be baffling. Many people end up on the wrong deal, perhaps paying for call time or extras they don't really need or use. There are a number of online tools and apps you can use to check your bill is not too high, such as Billmonitor and Mobilife. Enter your existing details and see if you could save money. In 2012, Billmonitor reckoned 26 million consumers in Britain were paying over the odds by as much as £164. The savings you could make will vary hugely, but it's certainly worth taking a look to see what you could save.
Apps like Viber and Whats App are also worth a mention as they allow you to text and call (Viber only) other users for free who have the apps on their smartphones. Whats App has ayearly subscription fee of around 65p, but the only other cost is the data on your smartphone plan if you're using 3G.
And when it comes to your broadband and home phone, it pays to find out if you are on the best deal. Dominic Baliszewski, telecoms expert at broadbandchoices.co.uk says: "Our own analysis has highlighted time and time again that a high proportion of customers do not actually switch broadband regularly enough to benefit from better pricing, which is crazy when you consider that switching can save you over £200 from your annual bill. Switching levels for broadband are woefully low when compared with energy or insurance services." Potential saving: £364
In the UK, households throw away an estimated 25 meals each month, worth a total of £60 a month or £720 each year. Avoid buying too much food, even when it seems like you are saving money. Try not to 'take advantage' of bulk buy deals you may not use, make good use of your freezer for fresh foods rather than putting them in the fridge and forgetting them, and change a few of your shopping and eating habits and you may save money.
Make a list and stick to it. Shopping online can help you avoid temptation, and if you do your shopping on Mysupermarket.co.uk, you could save even more. Enter your items as you would on a supermarket site, and it will find the cheapest supermarket for your needs saving on average £17 a shop, according to the site. On a weekly basis that makes £884.
Growing your own vegetables can also save money, although the set up costs can be relatively high if you are starting from scratch. But some foods are cheap and easy to grow, even if you have little space. If you are in the habit of buying bagged salad, you could easily save a significant sum by growing your own. Jane Perrone, gardening editor of the Guardian and author of The Allotment Keeper's Handbook, says: "The materials to grow your own probably cost something shy of £20 a year, for seeds and compost mainly - I usually use recycled containers." A standard bag of salad from a supermarket costs around £1, so if you would usually buy one bag a week, you would spend around £52 a year. Potential saving: £1,636
A Sky Sports bundle costs £43.50 a month, that's £522 a year. It's enough to take you somewhere sunny on holiday. It's enough to buy a whole new wardrobe full of clothes. Or, more importantly, several weekly food shops. Whatever else you could do with that money, it's certainly enough to make you think twice about whether or not you want to keep paying those subscription fees. Potential saving: £522
You might not be able to pay your credit card off straight away, but you can cut the cost. If your credit card has a rate of 18.9% and you have a balance of £5,000, then you could save £472 by doing a balance transfer to a credit card with a 0% introductory deal for the first six months. Potential saving: £472