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ISAs

Individual Savings Accounts

By using an ISA you can invest in cash or longer-term investments such as stocks and shares or insurance and not pay tax on most of the income (this is why they are called a tax wrapper).

On 6 April 2008 some key changes were made to the ISA rules:

  • The annual investment allowance is now £7200. Up to £3600 of that allowance can be saved in cash with one provider. The rest can be invested in stocks and shares with either the same or a different provider.
  • You can invest in two separate ISAs each tax year – a cash ISA or a stocks and shares ISA.
  • Mini and maxi ISAs no longer exist:
    • Mini cash ISAs, TESSA-only ISAs and the cash part of a maxi ISA automatically became cash ISAs; and
    • Mini stocks and shares ISAs automatically became stocks and shares ISAs.
  • Personal Equity Plans (PEPs) automatically became stocks and shares ISAs.
  • You can transfer money saved in a cash ISA to a stocks and shares ISA – but you can't transfer money the other way.

The HM Revenue & Customs website has a list of questions and answers about the changes that you may find useful – see Related links.

A competitive market

Providers compete hard to get you to take up your ISA allowances as soon as possible, or persuade you to switch existing ISAs to them. You often see bigger and better deals, with some extreme headlines. Some firms may offer very generous interest rates for cash ISAs, but beware of any strings attached:

  • Getting that rate may depend on you buying another product or service from them, which may not be as competitive as the ISA rate.
  • If the other product offered isn't a cash product it may carry a higher risk – so make sure you understand what this might be.
  • Sometimes the higher rate may only be for a fixed period of time, after which the interest rate drops to a less competitive level.

These are just some examples, but the bottom line is be careful of any 'hidden' or partially misleading catches before you sign up.

What should you do?

  • Shop around and look for a good home for your ISA allowances.
  • Consider switching existing cash ISAs if you feel the rate is not competitive.

But make sure you read the information provided and

  • know what you need to do to get the headline rate offered and make sure you're comfortable with it;
  • ask questions if anything is not clear;
  • check with your existing ISA provider for any costs of transferring out if you're thinking of switching (charges may apply to stocks and shares ISAs);
  • check whether you'll lose interest if you transfer from a cash ISA (the notice period); and
  • don't sign anything until you're satisfied.

You can compare cash, unit trust and open-ended investment company scheme ISAs on our website at Compare products.

More information

Find out about Savings and Investments.

The HM Revenue & Customs website has a list of questions and answers about the changes that you may find useful – see Related links.