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ISA Guide January 18

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If you’re looking to invest your money through an ISA, the forest of options and figures to wade through could seem confusing or even intimidating – so here is a quick guide to what the various types of ISA entail and what they can do for you and your money.

The essence of an ISA is that it allows for investment with tax savings – effectively acting as an umbrella encompassing products which receive benevolent tax treatment. People over 18 can invest up to £7,000 annually (those between 16 and 18 see a limit of £3,000), with this limit set until 2009 amid plenty of clamour for it to be increased. Once you have invested the full amount you cannot put any more in that year, even if you withdraw a certain amount before the 12 months is out.

Cash ISAs and stocks & shares ISAs are the two main types of ISA on offer – with a third, the insurance ISA, having been scrapped in April 2005. Both varieties hold different benefits and challenges for the ISA customer.

Mini and maxi ISAs are the two sub-categories to be found within these types, which effectively offer tax-free savings in a deposit account, providing a higher rate of interest than other offerings by the bank or building society in question.

Maxi ISAs have the aforementioned £7,000 limit – with the account having to be held with one single provider. Money can be invested both in cash (up to £3,000) and in stocks & shares (up to the full amount), but they tend to be more orientated to the latter, being designed for longer-term saving and not always providing easy access to your cash. As a rule of thumb, some experts believe that you should leave your money in a stocks & shares ISA untouched for five years.

Stocks & shares ISAs themselves are often for the adventurous, creative investor who likes to pick and mix. They can include shares and corporate bonds issues on any recognised stock exchange on the planet along with gilts and shares in UK-authorised unit trusts, among other possibilities. Profit is not guaranteed, but capital gains tax does not have to be paid on any money made.

Mini ISAs can see up to £4,000 put into stocks & shares and up to £3,000 put into cash. Each element can be taken from a different provider, but the limits are rigid – meaning that if you put £2,000 into cash you cannot invest a further £1,000 in stocks & shares. Customers are limited to one mini ISA per tax year, and cannot hold both a mini and maxi ISA during the same period.

Written Exclusively by AdFero for ISA Guides

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