The MoneyBroker's Guide to ISAs

Since they were first introduced back in 1999, ISAs gained popularity as a way of tax-free money saving option. They give you the opportunity to keep away the long hands of the tax man from your hard earned savings or investments. Every resident of the UK is allowed to save up to £20,000 split up between ISAs in stocks and shares and cash each financial year.

Types of ISAs

There are two main types – cash and stock and shares ISAs.

Cash ISAs – These accounts are basically nothing different from a standard savings account where the interest is not taxed. This is great because in the end you are getting higher rates on your savings than you would with any other account. Cash ISAs are open to each resident of the UK over 18 years of age. They offer a great variety between accounts – instant access, fixed rates, etc.

Stocks and shares ISAs – The money are usually invested in investment or unit trusts. The greatest advantage is that the profit is increased not just from the rise on the shares or stocks prices but also the exempt of capital gains tax. Also all the tax paid on bonds will be available to claim back. These stocks and shares ISAs are open to all UK residents over the age of 18.

Tips and advice:

- Look around providers every year. Especially for cash ISAs to ensure that you have the optimal rate, compare providers and if found better – switch your account to them.

Never withdraw money from a cash ISA – you will lose all the added benefits added up to your account so far. If you want to do so – close your account first.

- A few rules you need to know – a current year's cash ISA can be moved to another cash or stock ISA (you can't split it), but a current year's stock ISA can on only be moved into another stock ISA. For past year's cash ISAs – you can transfer it into another cash or stock ISA or split it. Past year's stock ISAs can be all transferred into another stock ISA or split between a few or more share ISAs.

- The return on cash ISAs is 1% and more on stock and share ISAs. There is always a risk for your investments but the main reason why they are so sought for are that they are tax-free savings. 

- Different accounts offer different terms so if you need regular access to your money - find such an ISA, if you need higher interest - invest in stock and shares ISA with high return.

Watch out for:

Transfer restrictions – not all providers will accept transfer from previous ISAs.

Restricted eligibility – many ISA providers offer deals only to existing customers.

Limited withdrawals – They may be limitations on your withdrawals from the account, even on the instant access accounts. You're likely to be offered a few penalty-free withdrawals a year.

Bonuses – if you choose an account with an added bonus for 12 months then you'll be likely to lose out on benefits after the end of this term. The best solution is to switch after that.

Where to get an ISA?

As said above, ISAs with greater benefits could be offered to existing customers only so the first place to ask for an ISA should be your bank. You can easily compare accounts and bonuses on MoneySuperMarket, ISADeals, LoveMoney.

You may want to read about: Savings Accounts.

The information on this page is designed to help you understand more and make more informed choices. We do not receive any commissions, instead we are funded from companies that we advertise on our website.