ISA
An ISA or an Individual Savings Account as it stands for is a most for any United kingdom tax paying saver, this is because it allows people to save their money and not pay any tax on the interest they earn whilst the money is in a ISA.
ISA's were introduced in 1999 to replace the old style PEPs or Tessa's, these older style products tended to confuse consumers, whereas ISA are a lot simpler to understand. The important thing to remember is that ISA are TAX FREE, this means the tax man can't take any of the interest that your savings earn.
There are a few different ISA's to chose from these are:
- Cash ISA
- Stocks and Shares ISA
Cash ISA's are as they sound for investing cash only. They come in a few forms Fixed rate ISAs, Variable rate ISA, instant access ISA's and limited access ISA's to name the main differences.
Stocks and Shares ISAs, are as they sound for investing money into stocks and shares and wrapping the investment in a tax free ISA shell. It is best to get advice on stocks and shares ISAs from a trained advisor.
In 2011 the maximum that can be invested into ISAs is £10,680 of which a maximum of £5,340 can be invested into a CASH ISA with the rest needing to go into a Stocks and Shares ISA.
ISA allowances change from year to year, and the ISA allowance needs to be used in the tax year or it is lost forever. So basically you should use your allowance each year to save tax free before looking for other investment options.
The best adivce is to shop around for the best individual savings accounts from time to time, and to switch your ISA between providers. From time to time different providers will compete to get new savings funds attracted to keep the banks lending/savings balance sheet attractive. Switching ISA or opening ones with a new provider in a new year can mean you continue to get the best rates on your tax free savings accounts.
