How to Find the Right ISA (Individual Savings Account)
The Individual Savings account is designed to encourage people to plan for their retirements and to generally plan for their financial futures. The ISA is a place in which you can "park" your money while earning interest and not paying tax on that interest.
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Instructions
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Figuring It All Out: What Is an ISA?
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Determine the type of ISA you will buy (maxi or mini) and shop around for the best rate:
A mini ISA allows you to save your money in a cash account and in stocks/shares accounts but both have limits. (Those limits will be discussed in further steps.) You can have two mini ISAs or you can have one mini and one maxi ISA but not in the same tax year.
A maxi ISA allows you to use a combination of different "investment types," from which to earn your income. You must shop around for the best rates on returns because maxi ISAs are better used for investment in shares and stocks.
Amounts invested annually do have limits and the ISAs come in the form of a mini and a maxi.
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Understand the point of the ISA:
Think of it in basic terms: You have all your money in two boxes and every year, the government (or tax man) comes around and pokes a hole in your boxes and takes his share of your hard earned income.
Placing your money in an ISA not only patches up the holes in your boxes, but puts a "wrapper" around those boxes so that Mr. tax man can't get to your money. The bonus is that you keep the interest you earn while your money is being protected by the wrapper.
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What can I invest? Where? and can I make withdrawals?
These questions should effect the decisions you will make in choosing the right ISA.
Overall, there is a £7000 limit per year, whether for a maxi ISA or a mini. If contributing to a mini ISA, £3000 must be cash and £4000 must be in shares or stocks. If you are contributing to a maxi ISA, you can invest all £7000 in the ISA, choosing a combination of different shares, stocks, cash and other options.
Your mini ISAs can be bought from different providers, so long as you don't go over your limit for the year. On the contrary, your maxi ISA can only be purchased from one provider. (In this case, you may wish to purchase more shares than cash options.)
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Read the fine print:
The good news is that you can withdraw your money at any time without penalty. However, withdrawing your money means that you can't shelter it from the tax you will have to pay on the interest earned.
When you purchase or contribute to your ISA, the individual products you buy will have their own terms, so withdrawal in some cases may not be possible. Overall, there is no penalty for withdrawing your money, but that will depend on the type of product you have chosen to park your cash in.
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Tips & Warnings
because this involves your money, ask questions if you have doubts or don't quite understand the process.
always read the fine print on the contract terms of the product(s) you buy
