Definitive Guide to ISAs

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What is an ISA?
 
An ISA is an Individual Savings Account. They were launched in 1999 and are a tax efficent investment. They are open to anyone over 18 or over 16 for a cash isa.
 
The government changed the system in April 2008 and you are allowed to invest upto 7200 between cash and stocks/shares ISA's.
 
You are allowed 1 Cash ISA upto a maximum value of 3600 each tax year with the option of investing the rest in a stocks and shares ISA. or you could invest upto the entire 7200 in a stocks and shares ISA.
 
If you remove any funds from an ISA account in a tax year e.g pay 3600 into a cash ISA then remove 1000 from it you are not allowed to replace the funds removed in the ISA account so think carefully before cashing in as the tax savings on the amount removed will be lost forever.
 
Advantages
 
There is no personal income tax (income or capital gains) on any ISA investment. Normally a basic rate taxpayer has to pay 20% of any interest earned in tax and a higher rate tax payer 40% but in an ISA the tax payable is zero.
No requirement to include in tax returns
You are not taxed on the funds you remove from an ISA account.

 
The Types
 
Cash ISA
 
This is as the name suggests a basic savings account which is available from most banks and building societies.
 
Stocks and Shares ISA
 
These split into 2 types
 
Self select ISA. with these you use a wrapper from a stockbroker like Barclays, Halifax etc and buy the shares you want through them.
 
Fund ISA with these your funds are invested by a fund manager who will pick where your funds are invested.

 
TRANSFERRING ISAs
 
If you find that your existing cash ISA rate drops you can transfer it to another provider if you see a better rate. You advise them you would like to transfer it to them and if they accept transfers in they will help with the paperwork. (please read below)
 
YOU MUST NOT CLOSE YOUR CURRENT ISA AND WITHDRAW THE MONEY AND THEN OPEN ACCOUNT,AS THIS WOULD COUNT AS A NEW SUBSCRIPTION AND YOU WOULD LOSE THE TAX WRAPPER ON THE FUNDS WITHDRAWN.

ISA BEST BUYS
RUFFLER BANK 6.11% MINIMUM INVESTMENT 3600
BARCLAYS BANK 6.08% MINIMUM INVESTMENT 1
BIRMINGHAM MIDSHIRES 6.15% (RATE FIXED FOR 1 YEAR) MINIMUM INVESTMENT 1
POST OFFICE 6.25% (INCLUDES A 1.5% BONUS FOR FIRST 12 MONTHS) MINIMUM INVESTMENT 1

MANCHESTER BUILDING SOCIETY 6.50% (INCLUDES 1% BONUS UNTIL 31/10/2009) MINIMUM INVESTMENT 1000

As with all savings accounts, rates are changing all the time but the above ISA'S are a selection of some of the best rates currently available.

WHAT IS A TESSA
 
Tax-Exempt Special Savings Account (TESSA) was launched by John Major in his first budget in 1990. Tessas were replaced in 1999 by Individual Savings Accounts (ISA's).

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