ISA is short for ‘Individual Savings Account’ . ISAs give you a way of investing in our unit trusts without you having to pay tax on the returns you make from the investment. Specifically, unlike other investments, you do not need to record your ISAs in your annual tax return.
Tax-free is the main selling point of ISAs because interest has to be paid on money saved in a traditional savings account, which can be at 20% for lower rate taxpayers or 40% for higher rate ones.
A Cash ISA is a savings account held with a bank or building society. Interest is then paid on the amount saved and this interest is tax-free.
Currently, you cannot have both a mini and a maxi Isa. It is worth remembering, though, that while your money is safe in a bank or building society deposit, interest rates can fall.
It is possible to earn around 6 per cent in a mini cash Isa , but it is worth remembering that mini cash Isa rates vary with the Bank of England (Base Rate) interest rate.
For this reason it may be worth locking into a fixed Isa, with one of the best one-year deals around pegs your rate at 6.4 per cent .
Investing in unit trusts through ISAs should be considered by someone with savings which can be put away for the medium to long term. Of course, the longer you can keep your investment, the greater the potential for better returns. But remember, your capital is not guaranteed and the value can go down as well as up.
Follow me on Twitter