Savings ISA

By: EconomyWatch   Date: 23 September 2009

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Savings ISA is a means to save in a tax-efficient manner. The money you invest in an ISA savings account and the interest are not liable to income or capital gains tax. One can save up to £7,200 each tax year in an account with a cash component of up to £3,600 and the remaining £3,600 in shares and stocks. You can opt to have the complete sum of £7,200 in shares and stocks.

Types of ISA Savings Accounts

Broadly speaking, there are two types of ISA savings accounts: the Mini ISA and the Maxi ISA.

·        Maxi ISA lets you invest the maximum amount of £7,200 in an ISA by any provider. You can invest £3,600 in cash and the remaining allowance in stocks and shares. You can also split the total allowance equally between cash and stocks and shares.

·        Mini ISA also allows you to invest in both cash and bonds and shares. The major difference is that you can invest with only one provider with Maxi ISA, whereas you can opt for a different provider for each component with Mini ISA. You can not opt for a Mini and Maxi ISA in the same tax year.

A cash savings ISA can be moved based on interest rate fluctuations. You need to be informed about the changing interest rates if you want to move your account. If you are thinking about long term savings and retired income, investment linked ISAs can play a crucial part. They have preferential tax breaks and are good for people who want to take more risks. It makes sense to save on a monthly basis when the market is volatile. Also, you can use investment linked ISAs as an additional pension savings option.

It is better to be very careful when you are deciding the type of savings ISA you want to open. Once you have used the cash allowance component, your ability to invest in shares and stocks will be significantly impacted. If you are in doubt, you can opt for the ISA Cash Park option provided by some ISA managers. This option helps you to keep your allowance for shares and stocks in cash until you decide where to invest. Also, you will not lose your tax benefits.


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Most Popular in ISA Individual Saving Account

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