The ISA scheme was set up to encourage people to save by letting them earn money tax free. They were by no means the first such vehicle.

Tax-free savings accounts where first set up by the Conservative Chancellor Nigel Lawson in 1986. He wanted to encourage people to invest in the stock market as his party were privatising a number of industries at the time. Swapping public money for private investment seemed like the winning formula to get British industry moving again.  He started the PEP (or Personal Equity Plans) scheme.

The initial investment limit of a PEP was £2400 (this was 1986 remember) with restrictions on when you could take out the money and what you could invest in  .Over time these were eased to make them more attractive to investors. It was soon possible to invest 100% of your PEP into funds for example.

In 1990, (when John Major was Chancellor) TESSAs (Tax-exempt Special Savings Accounts) were created to offer a counter balance to the equity-dominated TESSA. TESSAs were much like cash ISAs are now – you can invest a given amount of cash, tax-free in a building society or bank’s savings account.

When Labour came to power, things could only get better. The recognised the success of both schemes and merged them in to the ISA. To start with there were an array of ISA options. Maxi ISAs, Mini ISAs and TOISAs all had their own set of rules about what you could and couldn’t do. It was a nightmare and not a little bit off-putting for consumers.

It wasn’t long before all these disparate regimes were merged in to two easy-to-understand schemes –Cash ISAs and Stocks and Shares ISA.

ISAs have certainly had a rocky ride –it’s easy to forget that they are only just over ten years old. They have however been successful. An estimated 17% of us have an ISA account of some description.

There’s much confusion about ISAs and how they work. If you are unsure about the mechanics of your ISA, you may find the explanation below helpful.

ISA accounts are a government-approved way of you to save money without paying tax on those savings. There are various ways of doing it, you can save money in a savings account or you can invest in certain stock market properties.

The amount of money you can save is limited for the financial year, which ends on March 31st (in fact the ISA deadline this year is a little later –April 5th). Whilst those over the age of 50 can save a total of £10,200 a year, everyone else has a lower limit of £7,200. From April 5th 2010 everyone will be able to save £10,200 a year.

Given the tax-free nature of an Retrieved from “http://www.articlesbase.com/taxes-articles/isas-how-many-can-i-have-2014751.html“

When you are bringing a new life into the world, one of the first things you might consider is how you will be able to cope financially – in which case, you could come to the conclusion that saving sooner rather than later will stand you in good stead.  

Of course, this is a sensible attitude, and being prudent with your financial decisions while there is one less mouth to feed could mean there is more money available later when you need it most. Clothing, toys, medical bills and endless other extras can have a serious impact on your cashflow – particularly if the amount you are earning has been reduced due to maternity or paternity leave.

However, you may be wondering about the <a rel=”nofollow” onclick=”javascript:_gaq.push(['_trackPageview', '/outgoing/article_exit_link']);” href=”http://www.halifax.co.uk/savings/personalrates.asp”>best savings rates</a> available to equip you and your family for the future, but this is entirely dependent on how you see the coming months and years unfolding. For young couples planning a life together, a fixed rate ISA might be the better choice. If you are looking to have a baby in a couple of years’ time, you could find the product has enough time to mature properly, so you can make full use of the allowances available to you.

From April 2010, this means up to £5,100 can be put into a cash ISA, leaving the same amount available to be put into a stocks and shares option. If, however, you do decide to be more adventurous with your money, the whole £10,200 can be placed into the latter – but you may find the term of this investment is longer than two years. Of course, for those that like to plan well ahead this could end up being the best ISA choice, but it really depends on the individual.

If, however, you find the pitter-patter of tiny feet are coming sooner than you had expected, your plans may be slightly different. Of course, an ISA will still be a useful way to help protect your future should this be the case, but you may wish to keep some cash aside in a savings account that offers you competitive rate of interest to pay for your  more impending needs.

Finally, you may also decide starting a child trust fund now is the right thing to do, in order to maximise the amount available to your child when they reach adulthood. This facility is given a boost when opened thanks to a government voucher scheme and an additional amount will be paid on the seventh birthday of your son or daughter if the account is maintained.

All in all, the options available to new families are many. But whichever way you decide to go, the most important thing to remember is that the sooner you start putting cash away, the better off you will be when your spending priories are forced to change later.

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