The idea behind these accounts was to give individuals of all income levels a chance to make a profit off investments government guaranteed safe from the taxman. The money put into the accounts is taken from after-tax income and the interest earned from that point is not taxable when earned or when withdrawn.
There are two basic types of Individual Savings Accounts: cash accounts and stocks and shares accounts. The cash accounts are much the same as any cash savings account except for the tax protection afforded by the ISA. Those investors thinking of depositing their money into a cash account will find that cash ISA interest rates are competitive and easily found online. There are a great number of different stocks and shares accounts. They all have different ways of allocating the investors’ money. They require a bit more study before deciding on a bank or a fund as they usually will not guarantee a profit, much less an interest rate.
As can be expected, ISA accounts have a number of applicable government limitations and regulations, the most important of which, certainly, must be the limitation on the amount of money that can be put into the accounts during a year’s time. When first introduced that total was £7,000. Today that figure is £10,680 and a few more restrictions apply: for one, no more than £5,340 of that amount can be deposited in a cash ISA; the rest must be put in a stocks and shares account. If an investor wishes to put all of his eggs in one basket, he can only do it with a stocks and shares account. For another, the money in the accounts cannot be used as collateral for loans.
ISAs are a good way for the average investor to take advantage of tax-free investments. Cash accounts and stocks and shares accounts are the two types of ISA. And while both are subject to government limitations on the amount that can be deposited every year, they remain the best way for the small investor to avoid the taxman.