Best Cash ISA

Advantages of Saving Your Money In An ISA

Individual Saving Accounts (ISA's) is an investment vehicle that is primarily designed to encourage people to save. It offers fantastic advantages that you cannot get with any other type of investment which makes it irresistible for anyone looking to invest cash. The recent economic meltdown has made the situation even better for those who use ISA's since people are not saving money - and the government needs to encourage saving and investing. The ISA limit for 2010/2011 is the highest in history and with a gradual increase every year, its truly become a worthwhile investment option.

ISA's offer several distinct advantages. Here are some of the most important reasons why you may want to invest in a cash ISA.

1. Income Tax
Saving your money in a normal savings account can see you pay as much as £25 per £100. With ISA's there is no income tax that will be deducted.
2. Capital Gains Tax
The main reason why investors love ISA's is because there is no capital gains tax on investments in your Individual Savings Account. Capital gains tax needs to be declared to the Inland Revenue as the "profit" you make on an investment. ISA's need no deceleration up to the allotted amount.

3. Interest
ISA's have some of the best interest rates and will beat any cash savings account out there. The rates are also more attractive than many mutual funds and money market accounts.

4. Stocks And Shares
ISA's have become incredibly flexible and is no longer just for traditional cash savings. You can also invest in bonds and shares that have a greater long term benefit.

5. Disclosure
Investing in stocks and shares require a full declaration of income for tax purposes. With ISA's its much more relaxed and its designed as a easy-to-use investment vehicle and you don;t have to declare anything about it for tax purposes.

Choosing An ISA

If you are looking for the best cash ISA, then you are probably inundated with options. Because this is such an attractive investment vehicle, there are countless providers with different packages to "sell" you. Choosing the right ISA is important to make sure that you optimise your tax benefit without losing too much on fees and other hidden costs.

There are basically 3 ways to invest your ISA limit (check the IRS for latest limits).
- Up to £5,100 in a cash component with banks and/or building societies.
- Up to the full £10,200 in stocks, shares and bonds

There are also 3 different kinds of ISA'
1. Maxi ISA: When you invest the full limit with one provider - even though you can split it across 2 or 3 different components.
2. Mini ISA: When you split your ISA across more than one provider. Typically you can have one for cash, one for insurance and one for stocks and shares.
3. TESSA only ISA: When a TESSA expires, the capital can be re-invested in a TESSA only ISA without it counting towards your annual limit.

Although you are allowed to invest in both a Maxi and a Mini ISA in the same year you cannot reinvest it back once you have withdrawn any amount. Cash ISA's are great investments but the limit is quite restrictive in terms of how much you can invest in any given tax year. Its important that you invest the full amount every year and if you are nervous about stocks, then any ISA provider can help you simplify things by investing in a mutual fund and rolling your ISA limit into it.

Self select share ISA's can allow you to use your allotted ISA limit for shares if you prefer to buy and invest in shares on your own. For the majority of people however, an investment trust will be the most secure investment with the least amount of "maintenance" and risk.

Choosing The Best Cash ISA

Choosing the best cash ISA can be a bit of a minefield since there are so many choices. because most people are clueless when it comes to investing, many end up wasting their ISA investment advantages. Your cash ISA has a limit and you really have to make sure you take full advantage of it. Just because you don;t have to pay tax on it does NOT mean you won't pay any of the other charges on it.

Choosing the best cash ISA is all about looking at the fine print and making sure that you don't get any nasty surprises. Banks and mutual funds are now forced to disclose all their fees in easy to understand terms, but as we all know this is not always as simple as it sounds. Many aspects of ISA's are complex and if you don't have a thorough understanding you can burn your fingers. Here are some important consideration before you invest your cash ISA.

- Fees & Charges: What are the initial charges for the investment and what are the annual charges for keeping your ISA in that specific account. There are always fees involved if someone else handles your money and looking at both the short term and the long term fees can make all the difference.
- Dealing Costs: Do they charge dealing costs or is it included in the fees?
- Transfer Costs: What will the "exit fee" be when you choose to transfer to another provider?
- Access: How easily can you gain access to your money should there be an emergency and what will the penalty be to close your account and take out your cash?

Many providers offer a very good service and many even specialise in investing your ISA for you. Although it makes it easier, you should ALWAYS make sure you know how YOUR money is being invested. There is a lot of benefit in having one provider handle your cash ISA as well as your share ISA (if you choose to use it). In the end, tax free investments are freebies from the government and you should at least use your cash ISA to the full every year.

Why Save In an Individual Savings Account

Individual savings accounts or ISA's are designed to encourage saving. In the United Kingdom people are not saving nearly enough and many people face a bleak retirement with the government set to face an even heavier load in trying to look after an aging population who aren't saving for their retirement.

The secret to saving money is to start. Its as simple as that and in the UK we have more incentive to save than most other countries as the government has set aside a generous tax free savings plan. ISA's allow all of us to invest up to £10,200 (the limit changes annually) tax free. Tax free savings makes a massive difference and if you add these savings up over a 10 or 20 year period it adds up to a significant amount of money.

So, why invest your money in an ISA and not just in your bank account? You get interest from your bank, don't you? Well, although your bank pays you interest their fees almost eat up all the interest you earn. By comparison, banks offer very modest interest rates and by shopping around for the best cash ISA you can beat the banks any day of the week. With lower fees and higher interest rates your money can grow faster.

Individual savings accounts are also designed to be low maintenance and easy to use. Since most of us don't have enough investment know-how to make good investments on our own, an ISA provider can handle the investment for you and you can benefit from their expertise. Even though there are fees involved, the long term gains make it well worth it.

One of the big problems with trying to save money with a normal bank account is that you have too easy access to the money and its far too tempting to just blow it. If you save regularly in your ISA there is no real temptation to just spend it because the money is a safe account. Although you can withdraw the money from your ISA; its not that easy and the temptation to just spend it is not there.