ISA popularity takes tax-free savings to the masses

Following their introduction across the UK over a decade ago, individual savings accounts - which are more commonly known as ISAs - have proven to be a popular choice for British savers looking to make the most of their money.

The tax efficient option was brought to the market to replace other schemes like personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) and it seems that they have been taken to the heart of the general public since then. In fact, it is estimated that by the end of 2009 there were now well over 19 million ISA accounts in operation across the nation.

It could well be argued then, that the product is something that has now well and truly crossed over into the mainstream. But there are still some common misconceptions about how they work. Whether it is a variable or fixed rate ISA you opt for, it should be noted that the flexibility of the product means it is ideal for both long and short-term investment.

There are plenty of money saving tips you will find online, alongside various articles about how you might be able to secure the best ISA rate. But before you get to that stage you may first want to find out a little more about how the product works. Initially, you will be faced with two types of ISA from which to choose. A cash ISA effectively works as a high interest savings account that provides the benefits of being tax-free, but a stocks and shares ISA operates quite differently. Here, users will utilise investments, properties or bonds that can be picked by your provider on your behalf to hopefully create a return on your investment.

Another reason that you may want to consider opening an ISA is that from April this year, the amount you can put into an ISA was raised from £7,200 to £10,200. This new allowance was introduced by former chancellor Alistair Darling, who said the plan was to build on the success of the product. "I'm determined to help savers, because while low interest rates have helped millions of homeowners, I also know that they have hit those who rely on their savings to get by. This is why I am increasing the ISA allowance for all over-50s by £3,000 to £10,200 and from April next year for all savers," he explained.