ISAs
An ISA is a tax efficient saving account, investors do not pay income tax on any interest or dividends they receive from the investments held in an ISA, nor Capital Gains Tax on any gains made on disposal of the ISA.
Currently there are two types of ISA: a Cash ISA and a Stocks and Shares ISA. In one tax year you can invest a total of £7,200. Up to £3,600 per tax year could go into a Cash ISA with the balance, up to the overall £7,200 annual allowance, available to invest into a Stocks and Shares ISA.
If you want to save for less than five years, might need to dip into your funds occasionally or just want tax-free earnings on your 'rainy day' savings, consider a Cash ISA.
If you want to invest for at least five years to build money over a longer term or for an income in the future, then take a look at our Stocks and shares ISAs
What do ISAs cost?
In many cases, an ISA will cost no more than the charges of the investments held within it. Many providers, such as fund management groups, banks and insurance companies regard ISAs as such good savings opportunities that they effectively subsidise the cost of administering these accounts.
It is also the case that fund management groups will sometimes make the cost of investing in their stocks and shares ISAs cheaper than if you invested in the same fund but without the ISA wrapper. So, a unit trust management group may levy a 5% initial charge on a unit trust bought outside its ISA, while the same fund, investing in the same stocks and shares, can be bought within the same manager's ISA wrapper for 3%.
Similarly, with regard to the cash element, investors may find that the rates being offered for savings accounts within the bank or building society's ISA are notably better then those offered by the same institution outside the ISA wrapper.