ISA's

Individual Savings Accounts (ISAs) are available to all UK residents over 18 yrs of age. They benefit all taxpayers, especially those paying the higher rate. Unfortunately, they are not quite as easy to understand as they should be.

They're the latest Government scheme to stop the taxman getting his hands on your savings, replacing PEPs and TESSAs, but if you have one of these don't worry, you can keep your existing PEPs indefinitely and TESSAs until maturity.

You can invest into a number of components in ISAs, cash, stocks and shares to include unit/investment trusts, Open Ended Investment Companies (OEICs), Gilts (bought with at least 5 years until maturity), or any share quoted on a stock exchange recognised by the Inland Revenue- and finally, life insurance, although not all providers offer this last option. It's possible to combine all three components.

If you have a maturing TESSA, you can invest the original capital (without accrued interest) into a special TESSA only ISA. This will not effect your ISA allowance in the given year.

Basically, you can invest a maximum of £7,000 into ISAs. You can choose to do this by having up to three mini ISAs- Mini Cash, Mini Share and Mini Life- or by putting the entire £7000 into one Maxi ISA. You cannot run a Mini and a Maxi ISA together and you cannot have two Mini ISAs of the same type, i.e. two Mini Cash ISAs.

The Mini ISA

If you choose this option, you can have a maximum of £3000 in a Mini Cash ISA and £4000 in a Mini Share ISA . The division of holdings is inflexible. However, you can have each Mini ISA with different providers and are therefore free to shop around for the best Cash ISA rates.

The Maxi ISA

The main differentiator is the flexibility in the division of holdings. There is no upper limit on share holdings (up to £7000) and therefore your entire holdings can be in stocks and shares. However, the upper limit is still £3000 in cash. The Maxi ISA is one account and managed by one provider therefore, you would have to have the cash ISA rates offered by this provider. Maxi ISAs are generally the best option for those who want the major part of their holdings to be in stocks and shares.

CAT marked ISAs

A standard awarded by the Government to ISAs that adhere to guidelines concerning charges, access and terms. Guidelines for Cash ISAs differ slightly to those for Share ISAs.

What makes an ISA CAT marked?

Cash ISAs must guarantee interest rates are never more than 2% below base rate. Upward rates must follow the base rate within 1 month. Downward may be slower. No one off or regular charges (except for duplicate documents) the minimum transaction size to be £10, with 7 working days notice or less.

Please remember that any Cash ISA that is not Cat marked carries no guarantees on interest rates.

Guidelines on equity ISAs only cover fair charges, not investment charges. This is not all bad as it means that you could get higher returns, for higher risks, than with a non-Cat marked Share ISA.

To earn a Cat mark a Share ISA must not charge more than 1 % per year, or set a minimum investment level of more than £500 per year/£50 per month.

As with PEPs, Cat marked share ISAs insist that 50% of your stocks and shares are invested in the EU market.

Self Select ISAs

Self-select ISAs can be either Maxi or MINI share ISAs. They allow the investor to choose their own portfolio of stocks and shares, unit trusts, etc, rather than be limited to the ISA provider's selection.

Self-Select ISAs are available from Stockbrokers, but remember that you will have to do your own research into investments. Some brokers will advise, but be prepared to pay extra. There are some disadvantages. Firstly, they tend to be more expensive to run, as charges normally attract VAT, which is not redeemable under ISA rules. Also, be wary of hidden charges such as admin (for meetings, annual accounts, reports, etc) dealing costs, charges for employee share options/SAYE, and additional commission for investing more than 50% in shares outside of the EU.