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Understanding the Different ISAs Available

An Individual Savings Account (ISA) is a tax efficient way of saving money that was introduced by the British Government to encourage UK residents to save more.

The appeal of an ISA lies in the tax savings that you receive when saving your money in this type of account.

The money you save and the interest gained on your savings are exempt from income or capital gains tax, both of which may have to be paid on other savings and investments.

There are two types of ISA to choose from; cash or stocks and shares. A cash ISA is ideal for anyone who likes to plan their finances and wants to know how much they are going to get back in return for their savings. The simplicity of saving in cash appeals to many people as well.

Each year you have an ISA allowance so it is important to use this fully before the end of the tax year, April 5th, otherwise you lose it.

UK residents aged sixteen or over can save up to £3600 in a cash ISA. From October 6th 2009, the limits will be raised from £7200 to £10,200 of which £5,100 can be saved in cash. The higher limit will initially be introduced to those aged 50 or over, beginning on October 6th. Those outside of this bracket will have to wait until April 2010 to apply.

While only £5,100 can be invested in cash in an ISA account, it is possible to put the remainder into other ISA accounts such as a stocks and shares ISA account.

You can also move funds from a cash ISA into a stocks and shares ISA which makes it even easier to manage your money. It is worth noting that you cannot move funds from a stocks and shares ISA into a cash ISA.

As the original purpose of ISA’s was to encourage individuals to save money there are incentives for depositing more into your account. Some ISA providers offer tiered rates so the more you save, the more interest you earn.

As with other types of savings account there are a number of different types of cash ISA, from easy access and fixed rate to notice accounts. The rate of interest you receive tends to vary depending on which type of account you opt for so it is well worth shopping around before making your final decision.

If you want to be able to use your savings as and when required then you may be better to opt for an instant access account. Make sure you choose an account where you do not lose interest for making withdrawals.

A fixed rate cash ISA gives you a fixed interest rate for a specified time period, for example, the first twelve months. Look out for rates guaranteed to a certain minimum amount and check this fits in with your money plans.

Adam Singleton writes for a digital marketing agency. This article has been commissioned by a client of said agency. This article is not designed to promote, but should be considered professional content.

Article Source:http://www.articlesbase.com/personal-finance-articles/understanding-the-different-isas-available-1209141.html

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September 9th, 2009 | Category: Personal Finance | Comments Off
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