Individual Savings Account

Finance articles

Individual Savings Account – The Most Efficient Way To Use Your Money

An Individual Savings Account (ISA) is a tax-free savings scheme which allows you to save up to £7,200 in any tax year without having to declare it for tax.

An ISA is not an investment in itself but it enables you to invest in different types of asset:

  • Cash deposits. With a Cash ISA you can invest in bank and building society deposit accounts, cash unit trusts or National Savings. This is a good choice for short-term savings or it’s a good idea if you want to get easy access to your money. The rate of return isn’t great, but you will definitely get the interest on the amount invested over the term of the investment.
  • Stocks and shares. Alternatively you can go for a Shares ISA which allows you to invest up to £7,200 of your allowance in unit trusts, investment trusts or shares listed on any recognised stock exchange. For a shares ISA, there is no guaranteed return, but returns are potentially very good. The longer you can leave your money in it, the better.


So what are the advantages of the different types of ISA?

  1. Tax benefits. You can save up to the maximum each year without having to declare it for tax. Obviously, if you save at or near the maximum each year over a number of years, it can build up to a useful nest-egg
  2. Flexibility. You can switch your cash and shares ISAs among providers to make sure you get the best rate. Note – if you do this, don’t withdraw your money from the cash ISA. Get an ISA transfer form from the new provider.
  3. Choice. When the new tax year starts, you can choose whether to add to your existing ISA or start a new one.
  4. No capital gains tax. The real benefit of a Shares ISA comes when you realise your investment. Profits are exempt from CGT and any growth is yours to keep in full.


So ISAs have a lot of advantages for a lot of people. This scheme is one of the few tax breaks the government gives you! So if you don’t use it, you are losing out on over £7,200 of tax-efficient savings. However, Individual Savings Accounts may not be right for everyone. For instance, if you only have a small amount to save, you might be better opening a savings account with a good rate of interest. Talk to a broker or independent financial adviser, who can provide investment advice and help you sort out what is the right choice for you.

EB May 2008