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ISAs - Guide
Isa guide
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- Is an Isa right for you?
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- Best savings for your children
What is an Isa?
An Isa (Individual Savings Account) is a tax-free annual investment allowance launched in 1999 to replace the Pep and Tessa allowances.
An Isa is a simple type of investment known as a 'wrapper'. When you put your savings, shares or life insurance fund into an Isa account, your income and gains from the investments are free from personal taxes.
There are two ways of investing in an Isa:
- Maxi - an account from one provider that takes in the full £7,000 annual allowance. You can invest a maximum of £1,000 in the life assurance component and £3,000 as cash.
Any amount you do not invest in these two components can be invested in the stocks and shares component of the Isa, which means this can be from £3,000 to £7,000.
- Mini - known variously as a cash Isa or a mini-cash Isa, in this type of acount there is one account per component, with £3,000 for cash, £3,000 for stocks and shares, and £1,000 for life assurance allowed.
These different sums can be from three separate providers. You cannot mix and match these allowances as in a maxi.
Changes to the Isa system
New rules to simplify Isas will come into force in April 2008.
Holders of Isas are to be given more freedom in how they invest their money, under Government proposals.
- Read about the proposed new rules.
How do I invest in an Isa?
You can get Isas from Isa managers. These include:
- Financial advisers
- Banks
- Building societies
- Investment firms
- Stockbrokers
- Insurance firms
- Solicitors.
An Isa manager will explain the types of Isa his or her company offers. Different companies can offer different Isa products.
When you buy an Isa, you pay your cash to the Isa manager, who on invests on your behalf and ensures you get the tax benefits that you're entitled to.
When can I take my money out?
The tax benefits still apply whether or not you take your money out of an Isa.
Access to your money all depends upon which Isa you choose. Some Isa products run for specific time periods, so if you don't give the appropriate amount of notice your risk losing interest or bonuses.
With some share Isas and life insurance Isas, you may end up with less money than you started with, especially if you take your money out during the first few years.
This is because charges to the plan are taken out by the manager at the start.
If you have a stocks and shares Isas, you should be aware that the value of shares can fluctuate (if you're not aware of this, or are risk-averse, you probably should stick to a cash Isa).
Therefore, the return you receive depends on the state of the market at the time.
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