The tax year ends shortly on the 5th of April and you might want to take a look at your investments and savings.
Perhaps you have an ISA but think “what it is exactly?” We hear about the importance of them and how much better they are than normal savings accounts but how do they work and what are the benefits?
To put it simply, an ISA is a shield that you can place around an amount of money that you invest each year. The main benefit of this is it shields you from paying any further tax on the interest received.
- You can invest into a cash ISA which works just like any other normal savings account but without tax being paid on the interest.
- Or you can choose to invest in a stocks and shares ISA which are normally managed by a stockbroker.
- You can invest a certain amount every tax year which currently is an allowance of £10,200 (2011/2012) which can be split between a cash ISA and a stocks and shares ISA.
- You can only invest up to £5,100 each tax year into a cash ISA but you can invest your full allowance of up to £10,200 into a stocks and shares ISA.
- You cannot have more than one cash ISA or more than one stocks and shares ISA.
One thing to remember when you have an ISA is that if you withdraw any money from your ISA you cannot then reinvest that same amount in that tax year. So for example, you invest the full £10,200, if you withdraw any money then you can’t just put it back in that tax year like any other savings account. Once you’ve used that year’s allowance that’s it. If you don’t manage to invest the full allowance unfortunately it doesn’t roll over into the next tax year.
You are free to move your ISA to another provider but always check the small print, some banks offer introductory offers that only last for the first year so always keep an eye on the interest rate you earn and switch providers if you want.
|Minimum age you can open an ISA||16||16|
|Maximum Investment Cash ISA in one tax year||£5,100||£5,340|
|Maximum Investment Stocks & Shares ISA one tax year||£10,200||£10,680|
|Maximum Total Allowance one tax year||£10,200||£10,680|
So for example:
1. Rita wants to invest some money. She has £9,000. She decides to invest her full allowance of £5,100 into a cash ISA and the rest, £3,900 into a stocks and shares ISA.Later that year she needs to get her car fixed. Rita withdraws £1,200 from her cash ISA so it then stands at £3,900 and her stocks and shares ISA at £3,900. Rita can no longer invest any further money into her cash ISA but can still invest a further £1,200 into her stocks and shares ISA.
2. David has an ISA and invested £3,000 in 2009. This year he wants to save another £3,000 so by the end of the tax year on April 5th 2011 he will have invested in his cash ISA £6,000. If he wanted he could still invest a further £2,100 in his cash ISA and £5,100 in a stocks and shares ISA.
If you’re looking for a new ISA or want to share your opinion on your ISA provider then check out what our members are saying in their ISA reviews; once you’ve found the one for you compare the interest rates by using our comparison tool.