Individual Savings Account (ISA)

The Individual Savings Account (ISA) was introduced on 6th April 1999, replacing the Personal Equity Plans (PEPS). The ISA is a form of tax free savings that lets an individual save up to £7200 each year in an ISA scheme. He/she need not pay any tax on the income received from the savings.
Individual Savings Account (ISA): Types

An Individual Savings Account is of two types.
They are:


    * Cash ISA – It works like a regular savings account. This component has a limit of £3,600 each year. You can save with only one provider in a tax year. This is beneficial for people who pay high-rate taxes. One can look for better cash ISA accounts and transfer the account to cash ISA that offers higher yield. You can use an ISA comparison service to find the best possible rate.



    * Stocks and shares or insurance– You can invest up to £7200 each year in stocks and shares. It is a good long term investment option. Instead of stocks and shares, the same amount can be saved in life insurance.

If you want to invest in both the components, the individual limit is still valid and the total investment should not exceed £7,200. You can have different providers for each component.
Individual Savings Account (ISA): Tax Benefits

Opting for an Individual Savings Account is a great way to take advantage of major tax benefits. They are:


    * You need not pay taxes on the income received from the ISA savings and investments.
    * You need not pay taxes on capital gains from the investments.
    * You can withdraw the cash component any time.
    * You need not inform the HMRC regarding the income and capital gains associated with each Individual Savings Account.


Where to get Individual Savings Accounts

You can get an Individual Savings Account (ISA) from ISA managers, who are authorized by the Financial Services Authority. ISA Managers include:


    * building societies and banks
    * financial advisers
    * National Savings and Investments
    * some super markets and retailers


The highly competitive environment of the Individual Savings Account industry often announce better deals, particularly cash ISAs that have high interest rates. However, you may be required to buy another product or service with the provider to enjoy the high interest rates.