The Individual Savings Account (ISA) scheme was set up by the
government in 1999 to encourage people to save more money. It allows
people to save up to a certain amount each year without paying tax on
the interest or income from it. There are various different rules on
what you can save and how, so we've broken it down into an
easy-to-follow guide to give you an overview of ISAs and how you can
make the most of them to boost your savings.
This guide is for information purposes only and is not intended as
financial advice. For guidance on managing your personal finances, it
is recommended that you speak to a qualified independent financial advisor.
Savings limit
You can invest up to £7,000 per financial year (April to March)
in various combinations of ISAs without having to pay tax on either the
interest gained from your savings or any capital growth or dividends
made from your stocks and shares. If you mistakenly end up opening more
ISAs than your entitlement allows, you'll end up being taxed on your
income from them.
Types of investments
There are three ways in which you can invest your money in an ISA -
cash savings, stocks and shares and life assurance.
Maxi ISA
This type of ISA allows you to invest up to the full ISA threshold
£7,000. You can either invest the whole £7,000 in stocks
and shares and life assurance or up to £3,000 in cash and the
rest in stocks and shares and life assurance. All investments in a maxi
ISA must be with the same company.
Mini ISA
Alternatively, you can have up to two mini ISAs in one year, one for
cash and one for stocks and shares, and both of these can invest in
life assurance. The limit for the mini cash ISA is £3,000 and the
maximum that can be invested in stocks and shares is £4,000. You
don't have to have all your mini ISAs with the same provider.
Providers
There are lots of different providers of ISAs, all of which must be
approved by Her Majesty's Revenue and Customs (HMRC). These include
also supermarkets, retailers, fund managers, financial advisors and the
National Savings and Investments Bank (formerly the Post Office Savings
Bank) as well as high street banks and buildings societies.
Shop around
Not all providers offer the same interest rates and stocks and shares
options, so do your homework before you decide which provider to go
with. Also look out for charges for managing funds with stocks and
shares ISAs - these can vary signficantly.
Transferring ISAs
ISAs are very flexible - you can take your money out at any time
(subject to a notice period with some accounts) and you can easily
transfer an ISA from one provider to another, as long as you transfer
to the same type of ISA - you can't transfer funds from a cash ISA with
one provider to a stocks and shares ISA with a different provider. You
must also transfer the funds directly from one ISA to another (i.e. you
can't close down one ISA, withdraw the funds and then deposit them in a
different ISA). Check with your provider whether there are any charges
for transferring your ISA.
Who can get an ISA?
Anyone over the age of 16 can take out a cash ISA and anyone over 18
can take out a stocks and shares ISA, as long as they are resident in
the United Kingdom. Exceptions are made for civil servants and members
of the armed forces who live overseas, as well as their spouses or
partners. ISAs can only be taken out in your own name - it's not
possible to have a joint ISA.
Biography: Author: Benedict Rohan Website: http://www.mortgagenation.co.uk Benedict Rohan works as a freelance finance writer. Commercial Mortgage, Homeowner Loans, Remortgages