In the UK, ISA savings still appear to be proving a popular place to invest some of your money, largely due to the tax-free nature of ISA investments.  Many analysts currently appear to be talking down the short term financial outlook, not only in the UK, but globally, in the short term.  Some are offering glimmers of hope in the longer terms, perhaps seeing the market pick up in the longer term future.

The good thing about putting some of your money into ISA savings is that your investment will be tax free, and often earning a good rate of interest, over a period of a year.  Some financial institutions are offering higher rates now than they were twelve months ago, and when stocks and shares and other forms of investing may appear a little risky, ISAs in particular are looking like a comparatively sound investment for people lucky enough to have a small sum of money to put away for rainy days, and it does seem like there could be plenty of those on the horizon.

But don’t get too smug, it doesn’t, or at least shouldn’t stop there.

If you’re a smart investor, and if you’re interested in ISA savings there’s a fair chance you are, then you’ll know that high street banks and building societies are always competing with one another to offer the best rates, and best incentives to get your money invested with them.

But here’s the thing, while you can shop around for the best place to put your ISA savings, and you’re free to transfer to a new account (once a year, remember you can only open one account a year), you should always check the small print of your current ISA savings account, as they may charge for the privilege of you putting your own savings with another financial institution.

Often, if there is a charge to switch to a new account, the difference you could make in interest may more than cover the cost of this one off fee, but be careful and do the maths first.

One final, but very important note is you must avoid withdrawing your savings from your ISA at all costs! The moment your money is out of your ISA, putting into another account eats into your ISA deposit limit for that year. As an example you transfer your ISA savings from one account to another, say £3,000, into a new ISA at a better rate, you can still invest a full years worth of NEW savings into that ISA account. BUT, if you withdraw that £3,000 of ISA savings from your old cash ISA, and deposit it into a new ISA account, you’ve just used up £3,000 of your annual cash investment limit, even though that money originally came from an ISA.

At the time of writing the annual ISA investment limit is £7,200.  That’s the combined total for both cash ISAs and Stocks and Shares ISAs.  Remember however that only £3,600 of that can be in cash ISAs, at the very most, but any percentage can be in stocks and shares.

The annual limit is for each tax year, this is important to note because, as many people we’re sure will be aware, the tax year, or financial year, is not the same as the January to December year most people deal with in their day to day lives.

You do not have to put all of your ISA investment limit in at the start of the year, or indeed in one go, but you can only open one account of each time in any given financial year.  You can also often withdraw without penalty from your savings at any given time during the year without penalty, however any money you withdraw still counts towards your ISA investment total for that year.

As an example, if you were to put £2,600 into a cash isa (£1,000 short of your annual ISA savings cash limit for that year), and later on withdraw £1,000, you may still only deposit a further £1,000 into your ISA savings for that financial year, even though that will only take your balance to only £2,600.  The point is you’ve reached your ISA investment limit of £3,600 in cash for that given time period.  There is no way to avoid this limit, and as you may only open one account each year, you cannot open another ISA savings account with another institution to boost your annual tax free savings.

Now, to replace these savings accounts, you have simply Cash ISAs and Stocks and Shares ISAs.  The names should explain most everything, the Cash ISA is for saving cash, and the Stocks and Shares ISAs are, no surprise, for your Stocks and Shares ISA investment.

Their are still rules for the amount you can invest each financial year into each type of account.  There is an overall limit of (at the time of writing) of £7,200 you can save away from the tax man in your ISA accounts.  A maximum of £3,600 can be in cash savings, the rest in Stocks and Shares ISAs, however if you only want to invest £1,000 in cash, you can make up the remaining £6,200 in a stocks and shares ISA.

So as you can see, the new format for ISA savings is slightly less convoluted and more straight forward than previous years, with only two types of ISA investment accounts available, as opposed to two kinds of mini ISAs and one type of combined maxi ISA.

A Mini ISA savings account allowed you to invest only cash, or stocks and shares.  At the time of writing the ISA savings regulations limit your ISA investment to £7,200 in a single year.  You can, if you chose, divide this between two “mini ISA” accounts, one account a cash ISA, the other for stocks and shares.  You may only deposit up to £3,600 in cash into your cash ISA savings account, and up to £3,600 worth of stocks and shares in the other account.

On the other hand, you may chose to open a maxi ISA, which is a combination account of both cash and stocks and shares ISA savings, with an annual deposit limit of £7,200.  Your cash deposit limit is still capped at £3,600 per year, but your stocks and shares limit is not, so you could split your ISA investment 50/50 between the two, or save (for example) £2,000 in cash, and the remaining investment in stocks and shares.

So that explains, briefly, the difference between putting your money into mini ISA savings as opposed to maxi ISAs.  Perhaps maxi ISA accounts could be better thought of as combi ISAs, as they allow you to combine both stocks and shares and cash savings in one, high interest, tax free account.

Let’s look at the latter point.  Why should you be interested?  Well, we figure you must be interested in this particular kind of saving otherwise you’d not have found our website already (and we’re very glad you did), but WHY should you be interested in ISA savings?  To us that is pretty simple, it is the best way in the UK to save your money without having to hand over a chunk of that money to the tax man every year.  In short ISAs (Individual Savings Accounts) save you money on your savings by avoiding the tax man.  And wouldn’t be interested in avoiding the tax man (without breaking any rules)?

As for the first, and most important issue, what are ISA savings?  In simple terms ISA savings are, as previously mentioned, a tax free haven for your money, but they can also be used for other investments such as stocks and shares.  There are in fact two kinds of ISA savings accounts you can have for each type of investment, namely Cash ISAs and Stocks and Shares ISAs, and thanks to their plain English naming conventions, it’s pretty straightforward to calculate which ISA is for which type of investment.

We look at the different types of ISA savings in more detail elsewhere, but whether you have cash isa savings or make a stocks and shares ISA investment (or both!), the money you earn in these ISAs is safe from the tax man, and that, once again, is why you should be interested in ISA savings.

Here at ISA ABC we do not answer to any one financial institution or bank, so our ISA savings information is totally unbiased and unedited by any one bank or building society.

ISA ABC is a one-stop-shop for ISA savings and ISA investment information, we will provide an overview of the different sorts of ISA savings and investment opportunities open to you, in plain English with as little financial jargon as possible.

For those already familiar with ISA savings, looking for something a little more than the most basic information, we will attempt to look a little more in depth at the wider world of ISA investment, a fantastic way to invest and save your money tax free.