An Individual Savings Account (ISA), like a pension, is a tax efficient savings ‘wrapper’ for your money. What it does is provide a shield between your savings and the tax-man. What that means is that the fund grows within the ISA tax free (except for a 10% equity tax credit where applicable) and the proceeds can then be taken tax free.

An ISA is generally accepted as the first place to put your savings, although individual circumstances may vary.

An ISA can only be held by an individual, so there is no such thing as a ‘joint’ ISA.

There are two types of ISA, the cash ISA and the ‘stocks and shares’ ISA.

A cash ISA can be opened by anyone (potentially liable to UK tax) over the age of 16. The current maximum investment amount of £3,600 will rise to £5,100 at the start of the 2010 tax year in April. For those of us who are over 50 we can already put £5,100 in.

To open a stocks and shares ISA you need to be over 18 years of age and the current £7,200 limit will rise to £10,200 in April. Once again, if you are over 50 you can already invest £10,200.

The figures above are personal maximums, you cannot for example have two ISAs and contribute £10,200 into both in the same tax year.

One point about an ISA, you can only invest the money once in a tax year, if you withdraw money in a fully funded account you can’t replace it until the next tax year.

You can invest in one lump sum as long as it is below the maximum allowed. You can also make regular contributions to an ISA to build up a tax efficient saving fund.

The new tax year starts in April so there is not much time left. Make sure you have invested your full allowance by then. Why let the tax-man benefit? Also, shop around if you are in the market for an ISA, or better still take professional advice.

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