Individual Savings Accounts (ISAs) were introduced in April 1999 to replace old style PEPs and Tessas. They are not a complex financial product but simply a tax free wrapper into which you can place either cash or shares. ISAs were introduced by the British Government to encourage people to save money and invest for the long term. Investing in an ISA allows you to shelter your money from any income tax or capital gains tax.

  1. Every adult in the UK is allocated an ISA allowance of £10,200 each tax year.
  2. You can open one Cash ISA and one Stocks and Shares ISA each tax year.
  3. £5,100 can be invested in a cash ISA and remainder of can be invested in a Stocks and Shares ISA.
  4. You could just open a single Stocks and Shares ISA and invest the full amount in that.
  5. You can not carry over your annual allowance from one tax year into the next.
  6. Each person should invest the maximum allowance every year.
  7. You must be age 18 or over (16 for certain Cash ISAs) and a resident in the UK to invest in an ISA.
  8. Once a withdrawal is made from an ISA, the tax-free status on that money is lost.

Cash ISAs are a standard savings account except no taxes on any interest earned. People can save/invest a limited amount of money without paying taxes on the returns. Up to £5,100 can be invested in a Cash ISA per year. Like normal savings accounts there’s a variety of cash ISAs available, such as instant access, fixed rate, and accounts with base rate * guarantees.

*Base Rate is the standard UK interest rate set by the Monetary Policy Committee of the Bank of England. They meet each month to decide whether the rate should move or stay the same, in order to keep inflation (Consumer Prices Index) as near to 2% as possible. Currently 0.5%

 

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Stocks and Shares ISAs

There is more risk attached to a Stocks and Shares ISA because stock markets can go down as well as up, so you could lose money. The advantage of investing in a Stocks and Shares ISA is that you can shelter more money from the taxman than if you just put your money in a cash ISA. The Stocks and Shares ISA can invest in the following investments: investment trusts, shares, bonds, securities, ETFs, OEIC’s etc..

ISA Savings Rates Comparison Cash ISAs

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Highest ISA Savings Rate

——–

Barnsley Building Society

AER – 3.00%

Notice Period – 5/31/2012

Minimum Investment £100

Fixed Rate

——–

Second Highest ISA Savings Rate

——–

Nationwide e-ISA

AER – 2.75%

Notice Period – Instant

Minimum Investment £1

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Alliance & Leicester

AER – 2.75%

Notice Period – Instant

Minimum Investment £9,000

Direct ISA

——–

Fourth Highest ISA Savings Rate

——–

Halifax

AER – 2.60%

Notice Period – Instant

Minimum Investment £1,000

——–

Fifth Highest ISA Savings Rate

——–

Lloyds TSB -Fixed Rate Cash ISA

AER – 2.50%

Notice Period – 2 Years

Minimum Investment £3,000

——–

Sixth Highest ISA Savings Rate

——–

Lloyds TSB- Cash ISA Saver

AER – 2.35%

Notice Period – Instant

Minimum Investment £1

——–

Seventh Highest ISA Savings Rate

——–

Sainbury’s Finance Cash ISA

AER – 2.30%

Notice Period – Instant

Minimum Investment £500

——–

Eight Highest ISA Savings Rate

——–

HSBC Bank PLC- Cash e-ISA

AER – 1.75%

Notice Period – Instant

Minimum Investment £1

ISA Savings Rates Comparison Fixed Term ISAs

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Highest ISA Savings Rate

——–

Lloyds TSB Bank Plc eBond

AER – 4.10%

Notice Period – 3 Years

Minimum Investment £2,000

——–

Second Highest ISA Savings Rate

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Nationwide 3 Year e-Bond

AER – 3.50%

Notice Period – 3 Years

Minimum Investment £1

——–

Third Highest ISA Savings Rate

——–

Santander -2 yr Fixed Rate Bond

AER – 3.50%

Notice Period – 01/06/2012

Minimum Investment £10,000

——–

Fourth Highest ISA Savings Rate

——–

Santander -1 Yr Fixed Rate Bond

AER – 2.60%

Notice Period – 01/06/2011

Minimum Investment £10,000

ISA Savings Rates Comparison Easy Access Account ISAs

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Highest ISA Savings Rate

——–

ING Direct

AER – 2.75%

Notice Period – Instant

Minimum Investment £1

——–

Second Highest ISA Savings Rate

——–

Alliance Leicester

AER – 2.75%

Notice Period – Instant

Minimum Investment £1,000

——–

Third Highest ISA Savings Rate

——–

Birmingham Midshires

AER – 2.75%

Notice Period – Instant

Minimum Investment £1

Telephone Extra (Issue 2)

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Fourth Highest ISA Savings Rate

——–

Halifax

AER-2.60%

Notice Period – Instant

Minimum Investment £1

Tips & Warnings

* Teaser Rates – watch out as some ISAs will pay a high rate for the first 12 months to entice investors. After that be on the lookout for more competitive Cash ISA rates. If you do switch accounts, make sure you transfer the balance rather than withdrawing it. Otherwise you loose the tax free status.