FOOL'S EYE VIEW
60-Second Guide to ISAs

By Jane Mack (TMFJane)
August 16, 2002

An ISA protects your savings from tax. It's a bit like a fortress, which even the Chancellor of the Exchequer can't invade. Everything you keep inside your fortress is all yours!

0:58 What is an ISA?

ISA stands for Individual Savings Account. And that's exactly what it is – it's an account into which you can put your savings whether it be in the form of cash or investments. They are individual accounts so you can't have a joint ISA but you can invest on a monthly basis or by paying lump sums. In fact, some providers will let you start saving with as little as £1 a month but to make it worthwhile you should probably try to save at least £50 a month.

The most important thing about the ISA is that all your profits are tax-free.

0:47 What types of ISA are there?

There are three types of ISA. One is for cash, one is for 'stocks and shares' (more on this in a moment) and one is for insurance (we're not really sure what these insurance ones are for and it's probably best to ignore them). These seperate ISAs are called 'Mini ISAs' and you're allowed to have one of each every tax year.

Alternatively, you can have an all-in-one ISA which contains all three elements of the Minis. This is called a Maxi ISA and you're only allowed to have one of them each year.

It's important to remember that you can pay into three (different) Minis or one Maxi in each tax year.

0:34 How much can I save in an ISA?

There are restrictions on how much you can save in your ISA each year and it depends which type you've got. If you have one each of the Mini ISAs, the limits are as follows:

Cash - £3,000
Stocks and shares - £3,000
Insurance - £1,000

It means that you can save and invest up to £7,000 in total each year.

Similarly, if you've opted for the all-in-one ISA instead – ie: the Maxi – you can save up to £7,000 each year with a maximum of £3,000 going into cash and £1,000 into the insurance element. However, a Maxi ISA has a special rule that the Minis don't have. With a Maxi, you can put all of your £7,000 into the stocks and shares element if you want to.

0:24 What is a 'CAT-mark' ISA?

Some ISAs are headlined as meeting the CAT standard. It's a bit like a kitemark and indicates that CAT ISAs are particularly fair value for money because providers are restricted by rules governing their Charges, ease of Access to your money and their Terms and conditions. In other words, the charges are minimal, you can get easy access to your money and you don't have to pay vast sums of money to open an ISA.

In return for this, you will usually find that you're restricted to investing your money in cheap and cheerful products such as a stock market index tracking fund. But that's okay, since index trackers tend to do better than the expensive managed funds anyway.

0:14 What can I put in the 'stocks and shares' bit?

The stocks and shares bit of your ISA can include most things. That includes shares (so long as they're traded on a major stock exchange), corporate bonds, gilts, and most types of investment fund. The main things that you can't put into stocks and shares bit are shares listed on the Alternative Investment Market (AIM) and, of course, cash. You can have a bit of cash while you're waiting to invest it in one of the things that are allowed, but you're not allowed to hold cash in the stocks and shares bit just to try to save on tax.

If you want to buy a mix of these types of investments and choose the investments yourself, then you can do this via a Self-Select ISA.

0:04 Can I transfer my ISA to another company?

In short, yes. If you find another ISA, which has better terms, then you can transfer any ISA to the new company. The important thing is to transfer it. Don't ever actually close an ISA thinking that you have to physically take out your money to put it into a new account – you'll lose the tax free status if you do that.

All you have to do is tell the new company that you want to move your ISA to them and they will sort it all out for you.

So, there you go. If you've got a bit longer than a minute to spare, find out more about these beauties in the Fool's ISA centre.

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