Do you know your ISA rights?

An ISA account is often the best way to save smaller amounts of money as they offer preferential rates of interest. If properly used, ISAs can yield large amounts of interest and leave you with more profit for your savings investment. ISAs, which were set up by the government, allow consumers to save an amount of money each year without being taxed on the interest accrued. On other savings options, the government will take a share of the interest as tax, leaving the account holder with less interest. This does not affect ISA accounts and as such, the saver is left with more money in their savings account as 100 per cent of interest accrued is given. Despite the fact that ISAs are a government initiative, they are available at all high street banks. Each account has a maximum ISA allowance for each saver that limits their investment to £5,340 per tax year (April to April). By investing this whole amount into an ISA, you will be maximising the amount of interest you receive back, therefore making more money from your savings. Each UK saver is only allowed to open one ISA per tax year. However, it is possible to open a second ISA in the same tax year as your normal ISA by opening a stocks and shares account. Most savers do not realise that there are two different kinds of ISA; the traditional cash ISA and the stocks and shares or investment ISA. As the name suggests, a stocks and shares ISA allows savers to invest another £5,340 in the same tax year – but into stocks and shares on the stock market. The account works by giving the saver the profits back from the investment that has been made. Although the ISA allowance for a stocks and shares ISA is the same as a cash option, the government will allow you to combine both allowances to the amount of £10,680 and invest the whole amount into your stocks and shares ISA. However, the risk of a stocks and shares ISA is greater than a cash ISA. As the money is used for trading on the stock market and profits relate directly to the success of the funds, it is possible that large amounts of money can be made if the funds are invested correctly. The downside to this is that it is also possible for very little money to be made. If the investment is not handled correctly, the saver could be left with hardly any profit for their investment, although the original capital investment will never be lost. By maximising the amount you are allowed to invest in ISAs per tax year, you are maximising the amount of money you can make. Having and using an ISA is highly advisable as it is a great way to save money without having to pay tax on the interest.