ISA explained?

luckystrike1

luckystrike1

luckystrike1

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7 Mar 2007
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Can someone explain to me exactly what an ISA is? As far as I can see its some kind of high rate interest investment (that is tax free?) but all the info on the net is a little hazy.

Who are the best when it comes to setting up an ISA.

What sort issues are there with ISA's?

Can I have an easy explanation of what sort of return is to be expected from an investment of < £5000?

Cheers.
Tom.
 
Mini ISAs
There are two types of mini ISA:

  • Cash (maximum investment £3,000 per tax year)
  • Stocks and shares (maximum investment £4,000 per tax year)

You can invest in one mini ISA of each type in the same tax year, and each one can be with a different provider.

Maxi ISAs
Or you can invest up to £7,000 per tax year in a maxi ISA, which must contain stocks and shares. It can either be made up entirely of stocks and shares, or a mixture of cash and stocks and shares.

If your maxi ISA contains a mixture of both, the investment limit for the cash part is £3,000 per tax year.

The rules for investing in ISAs
The total amount you can invest in ISAs in a tax year is £7,000. This can either be in one maxi ISA or two mini ISAs.

You can only invest in one cash mini ISA in each tax year – up to a maximum of £3,000. If you invest in a cash mini ISA you cannot invest in a maxi ISA during the same tax year.
This will limit the amount you can invest in stocks and shares through ISAs to £4,000 in that tax year.


£3,000 in the top paying mini Cash ISA would get you £181.50 interest in the first year.
Leave it there for 10 years and your £3,000 is now worth £5,397.94.
Leave it there for 25 years and your £3,000 is now worth £13,028.31.
and that's all from just one year's investment!!

This is worth a read...
http://www.moneysavingexpert.com/savings/best-cash-isa
 
Last edited:
JonRohan said:
Probably best to speak to a local financial adviser dude who will recommend a course of action.
Click to expand...

For a question as simple as this? Not necessary IMO.

If the OP's google skills were better he'd have got his answers easily.

Open a mini cash ISA. There are no 'issues' with them - they are risk free. Your interest is paid tax free. You can have just one mini cash ISA per tax year. You can pay £3k a year into them, which goes up to £3600 from April 2008. That is per year, not maximum balance.
 
Just off topic slightly,

I was in the Nationwide Building Society 2 weeks ago, sorting a new mortgage, and asking them various financial questions while I had the chance.

I asked them about my ISA and came to the question of having more than one mini Cash ISA. Simple question was....


"Can I have say 4 or 5 mini Cash ISAs with different banks, Building Societies as long as the total value held doesn't go over the threashold allowance - of £3,600 for the year'



The advisor thought for a minute, then said 'yes' he thought so, but he then proceeded to call the 'ISA' expert in the branch. She also stated you could have more than one cash ISA in a year, and was adament about it ????

Once I came home, I phoned one of my mates who is a well respected accountant, who then told me me they were totally wrong.

So it just goes to show don't always believe what the so called experts tell you.

And just another point to note about ISA savings :

"When you die your ISA investments and any income or growth stop being tax-efficient. The value of the investments in your ISA is added to your estate and may be liable to Inheritance Tax"
and, a lot of ISAs pay different rate depending on how much you have saved. My own pays 5.72% - which give me enough income per year to afford a nice family holiday (and not have to save for it)
Just in case you manage to keep the money in there that long..;)
 
Last edited:
divosuk said:
"Can I have say 4 or 5 mini Cash ISAs with different banks, Building Societies as long as the total value held doesn't go over the threashold allowance - of £3,600 for the year'
Click to expand...

Sounds a bit like an idiot! Although, you can have more that one cash ISA with different people, just in different tax years which some people aren't aware of.
 
Cash ISAs are rediculously straight forward unless you want to start changing accounts during the tax year where you then need to start proper transfers etc to keep the tax free status.
 
divosuk said:
Just off topic slightly,

I was in the Nationwide Building Society 2 weeks ago, sorting a new mortgage, and asking them various financial questions while I had the chance.

I asked them about my ISA and came to the question of having more than one mini Cash ISA. Simple question was....


"Can I have say 4 or 5 mini Cash ISAs with different banks, Building Societies as long as the total value held doesn't go over the threashold allowance - of £3,600 for the year'



The advisor thought for a minute, then said 'yes' he thought so, but he then proceeded to call the 'ISA' expert in the branch. She also stated you could have more than one cash ISA in a year, and was adament about it ????

Once I came home, I phoned one of my mates who is a well respected accountant, who then told me me they were totally wrong.

So it just goes to show don't always believe what the so called experts tell you.

And just another point to note about ISA savings :

"When you die your ISA investments and any income or growth stop being tax-efficient. The value of the investments in your ISA is added to your estate and may be liable to Inheritance Tax"
and, a lot of ISAs pay different rate depending on how much you have saved. My own pays 5.72% - which give me enough income per year to afford a nice family holiday (and not have to save for it)
Just in case you manage to keep the money in there that long..;)
Click to expand...

That is pretty shocking that people whose job it is to know these things are so ignorant of the facts. As said already, the rules for cash ISAs are about as simple as could be, so you don't need to be a genius accountant or Gordon Gekko to work it out! :)
 
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