ISA Investments

The term ISA stands for Individual Savings Account. They should be a necessary addition to the financial portfolio of anyone has savings or capital. To qualify for an ISA you must be a UK resident and aged eighteen or above (sixteen for cash ISAs).

ISAs are a good form of investment primarily because they are tax exempted. The reason for this tax break is that the UK government wants to encourage people to save. If you are concerned with creating a solid foundation for your future finances, investment in an ISA is a great place to start.

There are different forms of ISA depending on the type of capital you wish to invest:

Cash ISAs; these work similarly to the instant access savings account, with one very positive advantage, the interest earned on your savings will not be taxed. There are several types of cash ISA such as instant access and fixed rate.

Stocks and share ISAs; these are available for the investment of certain types of stocks and shares. This type of ISA generally uses a collective investment scheme in order to create a single ISA for more than one individual and so make the investment more feasible. They usually consist of shares of a similar type- for example, those concerning the technology industry. Alternatively, if you wish to invest alone, your ISA will be managed by a stockbroker.

In the UK in each financial year (April to April) all persons are entitled to invest into an ISA a maximum of £7,200, of which the maximum limit for cash is £3,600. A person is able to invest all £7,200 in shares if they choose, but may not then invest any cash savings. With ISAs you are also able to share the allowance amongst both shares & stocks and cash if you wish.

Any allowance which is not used for a particular tax-year will not be carried forward to the following tax-year, therefore it is important to invest the amount to which you are entitled. Within the tax-year, you are able to invest any amount at anytime, providing you do not exceed the legal limits.

Many people assume that once resources have been invested into an ISA they are not permitted to access them again until a required amount of time has passed without the risk of losing the tax-free benefits. Although this may occasionally be the case, many ISAs will allow instant access to funds while maintaining the full protection from tax.

If a person decides to withdraw money from their particular ISA, the amount withdrawn cannot then be re-invested; the allowance of £7,200 per tax-year is a maximum.

Additionally, it is possible to transfer funds from cash ISAs into stocks & shares ISAs, although you will not be able to transfer in the reverse direction. Transferring from cash ISAs to stocks & shares ISAs is generally a good idea for those wishing to make longer term investments. Transfers between ISAs do not affect your annual allowance.