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The Beginner's Guide to the ISA

Mar 22, 2011

What is an ISA?

 

An ISA, or Individual Savings Account, is a tax wrapper which means that no tax is payable on the interest earned. Evolving from the PEP’s and TESSA’s of the 80’s and 90’s, ISA’s are intended to encourage a wide range of people to save long-term. 

There are two main types of ISA: a Cash ISA and a Stocks & Shares ISA. A Cash ISA can offer a fixed or variable interest rate and can be an easy access or notice account. As the value of a Cash ISA cannot fall (although the interest rate may fluctuate), the Cash ISA is well-suited to the cautious investor.

A Stocks and Shares ISA could provide a better return, but as with all equities-based investments, is subject to market volatility.

 

How do I start saving in an ISA?

Most banks and building societies offer ISA accounts, so it’s worth shopping around for a good rate. Some fixed rate Cash ISA’s will only accept a single, lump-sum deposit but most easy access and notice accounts will allow deposits at any time and you can open some ISA’s with as little as £10.

Many Stocks and Shares ISA’s offer regular savings plans so you can invest on a monthly basis.

The important points to remember are that you can only open one new Cash ISA and one new Stocks and Shares ISA in any tax year and there is a limit on the amount you are able to save in each tax year (see below).

 

New ISA Limits for 2011/12

For the tax year starting on 6th April 2011, individuals are able to save up to £5,340 in a Cash ISA. The remainder of your allowance, up to the overall limit of £10,680, can be placed in a Stocks and Shares ISA or you can use your whole allowance for a Stocks and Shares ISA only.

 

ISA Transfers

 

Should you find that the interest rate on an existing Cash ISA is no longer competitive, you are able to transfer to a different provider without losing the tax-free status. Make sure you inform your current provider that you’re transferring and not closing the account, though, and not all Cash ISA’s accept transfers so bear this in mind when comparing rates.

 

 

Cash ISA’s from Teachers

Visit our Cash ISA page for information about Cash ISA accounts currently available.

 

 

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