ISAs

The ISA, or the Individual Savings Account, was brought in to replace the older version, which was the TESSA, and was introduced in April 1999. ISA accounts provide individuals with the opportunity to save money without having to pay tax, as income and capital gains will not have to be declared.

As an ISA holder you can save up to £7000 each financial year, which runs from 6th April to 5th April. These accounts have to be opened by individuals and not as join accounts or on behalf of others. You must also be over the age of 18 to open a full ISA, although there are variations available, which does not include the share investment side of this savings account, for those aged between 16 and 18.

ISAs are guaranteed to run until at least 2010, and provide individuals with an effective way to save money without being hit by taxes.

There are certain restrictions in place with these accounts, so it is important to research them fully before you decide whether an ISA is the right account for your needs. For those aged 18 and over the ISA enables you to save money as well as invest in stocks and shares. For those aged 16 to 18 only the cash component of the ISA is available.

You can opt for a mini ISA or a maxi ISA, and these accounts do enable you to enjoy tax free earnings on your savings as well as enabling you to enjoy easy access to your cash. With a cash ISA you will receive back the amount that you invest along with interest.

With the equities component of the ISA you can invest in shares and stocks, such as unit trusts, bonds, and shares. When you open an ISA you can opt for investing in two mini cash ISAs or one maxi ISA. However, you cannot invest in both types in the same financial year.

The Maxi ISA is the one that has both the cash and the stocks and shares component, and a maximum of £7000 can be invested each financial year in this type of ISA. You can split the amount that you invest between equities and cash depending on your preferences, and providing you stay within the maximum investment limits.

With a Mini ISA you can take out one Mini ISA for each component, which means one for cash investments and one for equities. There are fixed restrictions with regards to how much you can invest in each, so unlike the Maxi ISA you cannot decide yourself how you want to split the total amount invested between equities and cash. You can save up to a maximum of £3000 with the Mini Cash ISA and a maximum of £4000 with the Mini equities ISA.

Over the past couple of years Stakeholder ISAs have also become available, and although there is no guarantee when it comes to performance these ISAs do have to meet certain conditions with regards to the value that they provide in order to be classed as stakeholder ISAs.

There are different stakeholder products available so again it is advisable to do some research in order to determine whether this type of ISA is suited to your needs.

With an ISA you can enjoy easy access to your money, but it is important to remember that if you do make a withdrawal you cannot put in the money that you withdrew in that same financial year. Once the money has been placed into the ISA it is classed as part of the maximum amount that you can invest, even if you then withdraw it.