Tax-Free Savings / ISAs

A new type of savings account was introduced in 1999: the individual savings account, or ISA. ISAs enable savers to save a limited amount each year, tax-free. This limit is currently £7,200. There are two different types of mini ISA in which savers can choose to invest their money: a mini cash ISA and a mini stocks and shares ISA. You can invest £3,600 in a mini cash ISA and £3,600 in a mini stocks and shares ISA. If you choose to invest in a regular ISA, your money will be invested both in cash and in stocks and shares.

Cash ISAs act in much the same way as a regular savings account. You earn interest on your capital and at the end of the investment period the full value of your capital is returned with interest added: with an ISA, this interest will not be subject to tax. Stocks and shares ISAs (and stocks and shares mini ISAs) are riskier investments. Your capital is invested in the stock market with the hope that the returns it makes will result in overall capital growth by the end of the investment period. You can usually choose either to receive returns periodically during the investment period or receive the entire (hopefully more valuable) capital when the investment has matured. ISAs are available at most financial institutions and are available for investors as young as sixteen.