What You Need To Know About Individual Savings Accounts (ISAs)


  • Author Mark Oral
  • Published December 15, 2011
  • Word count 542

An Individual Savings Account is an increasingly popular way to save money while protecting your assets from the tax man. But with so many banks vying for your attention and offering a variety of ISA plans it's difficult to know which to choose.

ISAs: What You Need To Know

The different options available to you will affect how you save and how much access you have to your money. ISAs tend to be grouped in two categories: cash or stocks and shares - each with a range of advantages and disadvantages.

Cash ISAs: very similar to ordinary savings accounts, but protected from tax. While access to your cash is swift and simple, not all cash ISAs have decent rates of interest. Some accounts will let you transfer money between different ISAs.

Stock and share ISAs: it's possible to turn your investments into an ISA. These types of ISA are less accessible but if you pick the right investment, your returns could be very high.

What can I put into my ISA?

ISAs have a reputation for being complicated and confusing, but more recently, the process has been simplified. Regulations limit the amount which you are able to put into an ISA per tax year and these amounts differ across cash and stock ISAs. The current limit is set at £10,680, but additional rules apply to how much of that can be put into your particular account.

Cash: you can put a maximum of £5,340 into a cash ISA. The remaining part of the allowance can be used for stocks and shares.

Stocks and shares: if you wish, you can put your entire £10,650 allowance into a stock and share ISA, but will not be able to deposit any further funds into a cash account.

It's worth noting that you don't have to use the full allowance on your cash ISA - you may choose to deposit an amount less than the £5,340 limit and use the rest on stocks and shares. Whatever you do, make sure you use your allowances wisely since they don't roll over to the next year!

What can I take out of my ISA?

It's also a misconception that you can't touch the money in your ISA once it has been deposited. While some ISAs do have restrictions on what you can withdraw and when, many allow you instant access to your money. Keep in mind, if you take money out of your ISA, your yearly limit remains the same. If you deposit £2,000 in a cash ISA - you still may only deposit a further £3,340 as part of your allowance.

When you have money in an ISA, it's important to get into the habit of monitoring the interest rate on your account - and others. If your interest rate drops, you may want to transfer your money to the more lucrative account.

As a rule, avoid withdrawing money from your cash ISA if you're planning to transfer accounts. If you do, you'll lose all your tax benefits. Consult your ISA provider and they should be able to work out a way of transferring your funds safely. As with any transfer, rules apply when moving funds across different ISAs and its helpful to get as much information as possible when managing your account.

If you are interested in reading more information about ISAs or tax free investment plans, please visit the following links:

HM Revenue and Customs at http://www.hmrc.gov.uk/leaflets/isa.htm and Scottish Friendly at http://www.scottishfriendly.co.uk/tax-free

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