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FOOL SCHOOL
So this means you can't put in £7,000 early in the year, take out £3,000 and put in £2,000 later on. You've already put in your £7,000 for the year and that's it. At that point you've used up your ISA allowance for that year. This means you need to make sure, wherever possible, that you don't put in money that you might need in the short term, otherwise you might waste some of your allowance.
Remember that the tax year runs from April 6 to April 5. After April 5, you can either continue paying in the same ISA for the next tax year, or you can open a different ISA. Your original ISA from this tax year will continue, protected from tax, until you decide to withdraw your cash or investments. However, if you've opened a new one you won't be able to add any more money to the old one once the tax year is complete - remember, you can only contribute to one ISA in any one tax year, however many you have open. If you're paying by direct debit and you don't wish to open the same ISA for the next tax year remember that you'll need to cancel the payments, otherwise you'll be stuck with the same ISA again.
The government has said that the £7,000 limit will apply until the 2005/6 tax year and it has also said people will be able to contribute to ISAs until at least 2008/9. What happens then? It seems reasonable to assume that ISAs, or a similar tax-free savings vehicle, will continue be available as ISAs have proved to be remarkably popular. But we shall have to wait and see.
How Much In Each Teabag?
With ISAs there are restrictions on how much you can put into each component.
However, there is one special rule regarding the Maxis. The government seems to favour shares so, if you want, you can put your ENTIRE £7,000 allowance just into the shares component. Bear in mind this means that if you take the Mini route, you are restricted to £3,000 in cash, £3,000 in shares and £1,000 in insurance. It's only if you choose the Maxi route that you're allowed to put all of your £7,000 into shares.
When To Invest
A large proportion of the money invested into ISAs is put in the last few weeks of the tax year. Some people even deliver cheques by hand on April 5! For cash ISAs this is less relevant but for share ISAs it makes much more sense to drip the money in steadily over the course of a year. If you're investing in a fund they will probably have set up a monthly or quarterly savings scheme via direct debit. This avoids the problem of investing all your money at one time and hence reduces the risk that you might catch a temporary peak in the stock market.
More: Find out how to get your free ISA guide | The ISA Centre