ISAs, PEPs and TESSAs Guide

ISAs (Individual Savings Accounts)

The Basic Facts

So, what is an ISA?
An ISA is a type of savings account. Basically, if you save in an ISA you are entitled to keep all that you earn from that investment and not pay any tax on it. This is not the case with, for example, an ordinary bank or building society account unless you are a non-taxpayer – see the booklet IR110 ‘A guide for people with savings’. Details of how to obtain this can be found on the page Getting More Help & Advice.

ISAs began on 6 April 1999 and will be around for at least 10 years from that date. You can start with small amounts and save up to £7,000 each tax year until 2005/2006, and up to £5,000 in each tax year from 2006/2007. A tax year runs from 6 April to 5 April the following year.

Why would I want one?
ISAs are a good way to save. The important thing about them is that you do not have to pay tax on the money you earn from them. You can put money in and take it out whenever you want, and you don’t even have to tell your Tax Office that you have an ISA.

Where can I get one?
You can get ISAs by going to an ISA manager. These include banks, building societies, National Savings, some supermarkets and retailers, friendly societies, insurance companies, unit and investment trust companies, financial advisers, fund supermarkets and stockbrokers. Your ISA manager will look after your account for you.

Are they flexible?
Yes. The ISA scheme has been designed to provide different ways of saving to meet people’s different needs. You can plan for the short term, or put your money away for much longer.

There are three ways – called ‘components’ – in which your money can be invested: cash savings, stocks and shares, and some specially designed life insurance policies.

  • Cash ISAs may be suitable for short-term savings, so that you can get at your money easily.
  • Stocks and shares ISAs may be appropriate if you can afford to leave your money untouched for longer than, say, five years, though your investment may go down in value as well as up, and you are not guaranteed to make a profit.
  • Life insurance ISAs are also for long-term saving and offer some built-in life cover in the case of your death. Again, you are not guaranteed to make a profit and you may get back less than you put in, particularly if you take your money out after only a few years. However, some types of policy, including ‘with profits’ policies, are designed to iron out the ups and downs of the stock market.

How do I find out about them?
ISA managers will give you details of the ISAs they offer and may provide advice about which would be right for you. (Not every ISA manager will offer every facility.) Alternatively, you could go to an independent financial adviser for help in choosing the best option. The Financial Services Authority’s booklets, the FSA guide to financial advice and the FSA guide to ISAs – An introduction give more information. You can get them by calling the FSA Consumer Helpline on 0845 606 1234 (calls are charged at local rates) or from their website at www.fsa.gov.uk/consumer.

How much can I put into ISAs?
You can put in as little as you like (subject to the ISA manager’s terms and conditions). You can put in as much as £7,000 in each of the tax years 2001 /2002 to 2005/2006 and up to £5,000 in each subsequent tax year from 2006/2007.

You can pay into your ISA whenever you want. You can pay the full amount in one go, make regular payments or pay in when you like. You can stop making regular payments at any time.

How do I get one?
Simply apply to the ISA manager of your choice. You could visit a branch, or write to them. Some companies allow you just to telephone, fax or e-mail.

What you have read so far is the basic information you need to know about ISAs.

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