Getting To Grips With Isas By Benedict Rohan At Isnare.com Ezine Articles

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.

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