Talking About Green

Since 1999 there has been a new kind of savings account available– the Individual Savings Account, or ISA. While the ISA can seem like a bit of a confusing mess, taking the time to understand how an ISA works can help you protect your savings from excess taxation.

One of the first thing to know about ISAs is how much they’ve changed over the years. There used to be several different kinds of ISAs: mini, maxi, and tessa-only, though these differences have since been combined into one simplified kind of account. Also, you should be aware that in order to invest cash in an ISA you must be over 16, and in order to invest stock or shares you must be over 18.

The current ISA only comes in one form, with rules that have been greatly simplified. Another recent change to the way ISAs function is the abolition of the insurance portion of an ISA. Because you can no longer use an ISA for insurance, you will need to purchase your home and contents insurance somewhere else.

What you can put in your ISA:

Your ISA can contain a total of £7,200, which can include stocks and shares worth up to the whole £7,200, though if you wish up to £3,600 of it can be composed of cash.

How ISA’s handle taxes:

One of the benefits of an ISA is that dividends and interest as well as capital gains are not taxed. However, there are some things you should be aware of. First of all, if you have cash in the stocks and shares part of your ISA, interest on that money will be charged 20%.

Things to remember when using an ISA:

You can only invest stocks and shares with one financial institution per year. To get around this, you can use a Fund Supermarket to keep your stock diverse.

Be aware that while ISAs themselves are a great way to avoid taxes, you are not protected by fees from your financial institution. You should remember that the same fees you would accumulate for dealing with stocks outside of an ISA can happen within an ISA as well, and plan accordingly.

By keeping these rules in mind, an effectively used ISA can be a great opportunity to save money without having it taxed.