ISA’s Explained

The term ISA, is the more common name given to a individual savings account, which are a government supported savings scheme that is not liable to the usual form of taxes which was first installed in 1999 with the intention of encouraging people to start saving more money. They may have been officially launched in 1999 but the actual rules and regulations that govern their usage were completely reformed in 2008 in order to remove what many people found to be the confusing mini-ISAs and maxi-ISAs and creating a more standardised form of savings system.

As a result of the rules that came into place in April 2008, anybody can make an investment of up to £7,200 within any tax year (april to april), without having to pay any tax at all. The individual savings accounts come in the form of cash ISA’s and stocks and shares ISA’s or even both. As of October 2009, this annual limit increased to £10,200 per annum for any individual over the age of 50 which is broadened to include everyone of any age by April 2010. The cash limit of the total allowance will increase from £3,600 to £5,100 and the remaining allowance can be invested in shares, both of which produces an annual interest which can be calculated by using one of the various specialist savings calculators available online. As a result of the introduction of ISA’s, any former personal equity plans have now been merged with stocks and shares ISA’s.

A cash ISA gives individuals the opportunity to put their money out of their reach into an account that will allow them to benefit from interest as would be the case in an ordinary bank account or building society account but with the added benefit of being exempt from tax. A stocks and shares ISA on the other hand, will invest in the stock markets and whilst any gains the money makes are not actually taxed, the capital is liable to the various rises and falls that comes with investing in the stock markets.

Cash ISA’s are often a good way of investing money with the aim of gaining interest, avoiding tax and easy access to the funds within it, even at quite short notice whereas shares ISAs are typically considered to be a more long term investment. The interest rates differ but can be viewed online or if you know how much you are looking to contribute, you can use a savings calculator in order to see what return you would get on your investment. These savings calculators are free to use and can be found online.

Individual Savings Accounts generally be bought at any of the usual places such as banks, building societies, fund managers and supermarkets who all have a range of investment products. Professional and un-biased financial advice should be sought when choosing a reliable provider and as discussed earlier with regards to savings calculators, proper research should be done before making any final decision.