Individual Savings Accounts (ISAs)

An ISA is a tax-free savings account, open to any UK resident. This account allows you to save up to a total of seven thousand pounds tax free each tax year. Remember, a tax year runs from the sixth of April to the fifth of April the following calendar year. You can invest your money in cash and stocks and shares. The money you invest in cash will earn interest and a small investment return. There is no guarantee that the money you invest in stocks and shares will earn any investment returns: it is possible that at the end of the investment term the value of your savings may have reduced. You will usually be required to leave your money invested in stocks and shares for a minimum period of time.

It is possible to invest in only cash or stocks and shares by opening a mini-ISA; a mini-ISA is an investment in one ISA component, thus you can open a cash mini-ISA or a stocks and shares mini-ISA. You can invest a total of three thousand pounds in a cash mini-ISA and four thousand pounds in a stocks and shares mini-ISA. If you wish to invest in both components you can open a regular, or maxi, ISA or two mini-ISAs. It is currently possible to invest in stakeholder ISAs, which operate under controlled guidelines that ensure a fair and simple investment opportunity.

ISAs have the advantage of being tax-free and offering you a chance to make reasonable returns, whilst choosing how your savings are invested: in cash or the stock market. However, you are limited to how much you are able to save each tax year and are not guaranteed any returns on your stocks and shares investment. You could also lose some of your money if your investments do not perform well. ISAs are available from most high street banks and building societies.