Individual Savings Accounts (ISA's)
If you are looking for a way to save and invest without paying a fortune in capital gains taxes, perhaps an individual savings account (ISA) is the way to go. ISA's were created by the government to encourage people to save through a variety of vehicles, and allow you to put money away short or long term without having to pay one thin pound on your return. The ISA has replaced the personal equity plans (PEPS) and the tax-exempt special savings accounts (TESSAS) as a means of saving with tax benefits.

What is an ISA?
An ISA is not an investment product or an actual account that you open; instead, it is a wrapper that can be used to hold investments or bank accounts without having to pay capital gains taxes on your return. There are many different investment and saving products that can fall under the ISA wrapper, and you can find them through banks, building societies, fund managers and even supermarkets. If you are unsure if a particular product is the right choice for you, it is best to seek financial counsel from an expert in the field before selecting a product for your ISA.

It is also important to note that while the returns on your ISA may be tax exempt, this does not protect you from the normal fluctuations in the stock market should you choose to invest in shares. It is possible that your ISA will lose value if the stocks that you invest in do poorly. On the other hand, a savings account or mutual fund may be a more secure choice for your ISA, even though the possible return may be smaller overall.

How does an ISA Work?
Because there are tax advantages to an ISA, there are regulations governing them as well. First, there is a limit as to how much you can put into your ISA each year. This amount will vary based on the type of investment and ISA that you choose. A maxi ISA will allow you to put in as much as £7000 each year into shares, or you can opt to put £3000 into a cash savings account. On the other hand, a mini ISA will allow you to split your investment into cash and shares with either the same provider or different ones. You can purchase one or two minis each year, but you cannot have a mini and a maxi in the same year.

ISA's can be transferred to other managers at any time, although the current manager may have rules regarding how much of the ISA product can be transferred at a time (whether part or whole) and may charge you a fee for taking the money out of their product. It is important to read the fine print on any ISA product that you open to ensure that you manage your funds appropriately. ISA's can be a great way to save and earn a return on your investment without worrying about paying taxes on your gains. Talk to your financial advisor today to see if an ISA is the right choice for you.