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ISAs - An Introduction
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ISAs - An Introduction
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It may only constitute three little letters, but the importance of an ISA as a tax free savings mechanism cannot be understated.
So, give me an 'I', give me an 'S', give me an 'A', and let us introduce you to the world of the Individual Savings Account.
Once you've digested this guide, compare ISA accounts to find the ISA that most accurately suits your needs.
What’s all the fuss?
Individual savings accounts (ISAs) were introduced by the Labour government nine years ago, replacing PEPs and Tessas. They permit each UK tax payer to save a certain amount of money each year, tax free. Each tax year runs from April to April, so March is a busy month for ISA sales. Investors are in a rush to top up their ISA allowance before the start of the new tax year.
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So what’s my allowance?
From April 6th 2008, the maximum investment level for ISAs will rise from £7000 to £7200. The allowance that can be invested in cash will rise from £3000 to £3600.
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ISAs are confusing, what are the different types?
- Mini ISA - In rudimentary terms, you can think of mini cash ISAs as tax free savings accounts. In the next financial year, which begins on the 6th of April, you will be able to park up to £3600 in a mini cash ISA account.
- Maxi ISA - Up to £7200 is permitted to be invested in a maxi stocks and shares ISA over the course of the next financial year. Unit trusts, investment trusts and open-ended investment companies also qualify for inclusion within a stocks and shares ISA. Brokers such as TD Waterhouse (www.tdwaterhouse.co.uk) or The Share Centre (www.share.com) are on hand to guide and help you through the stock market maze.
- Cash and Shares mixed ISA - If you so wish, you can take out a Maxi ISA, and invest up to £3600 in cash savings, and up to £3600 in shares. This gives you the flexibility to broaden your horizons and maximise potential gains.
If you now feel suitably interested in taking out an ISA, check our guides to cash ISAs, share ISAs and innovative ISAs.
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Ok, so who do you recommend I talk about ISAs with?
Depending on how much of a risk you’re prepared to take, there are a number of avenues open to those wishing to invest in an ISA. The Virgin Climate Change Fund (www.virginmoney.com) is a high risk ISA due to its reliance on European markets and a narrow band of industries, but the potential returns on this fund are considerable.
The Legal and General (www.legalandgeneral.com) actively managed ISA is a low risk investment, with a fund manager monitoring your investments all the way. Gains from this ISA will be dented by the cost of your fund manager though.
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