Saving in an individual savings account ISA is pretty much a no-lose enterprise. Each year you can put up to £7,000 in an ISA scheme, receiving interest tax-free and dividends with no further tax to pay. The ISA limits allow you to have one maxi ISA or up to two mini ISAs in each tax year.

You may put shares and cash up to the value of £7,000 in a maxi ISA, with a maximum of £3,000 in cash. You can hold up to £4,000 worth of shares in a shares mini ISA and up to £3,000 cash in a cash mini ISA. If you have two mini ISAs in the same tax year, they must be of different types i.e. one of shares and one of cash. You cannot take out both a mini and a maxi ISA in the same tax year.

Because you receive the interest on cash deposits tax-free, your savings grow more rapidly. In the case of a shares ISA, you have no further income tax to pay - important if you are a higher-rate taxpayer - and, while the value of shares may go down, if the value goes up, you have no capital gains tax to pay when you cash in your investment.

ISAs were introduced by the Labour Government in April 1999, when they replaced personal equity plans PEPs and tax-exempt special savings schemes TESSAs, savings plans devised by the Tories.

Labour, however, has a poor record on encouraging saving. After a vigorous campaign of protest from consumers and the industry, Chancellor Gordon Brown was forced 18 months ago to back down on plans to cut the amount individuals could save in a cash ISA from £3,000 to £1,000. He pledged that the total that could be saved in ISAs would be preserved at £7,000 until at least 2010, instead of the proposed cut to a maximum of £5,000 from this year.

However, while it is good news that the ISA limits are not being cut, it should be noted that they have not been increased in line with inflation. Research by Alliance Trust shows that, if the yearly ISA allowance had risen in line with the Consumer Price Index CPI inflation rate, investors would at present be able to invest up to £7,677 each year. If inflation continues to rise at a rate of 2% - the Bank of England's Monetary Policy Committee target - that figure would have risen by 19% to £8,310 by 2010.

Malcolm Dodds, PEP & ISA product manager at Alliance Trust, said, "Since inception ISA limits haven't changed. It is important to give investors incentives to save, and the current ISA system does not seem to be moving with the times.

"It would only be fair to investors to offer them the best real term value for their tax-free investment, and one way to do that is to increase ISA limits in line with the CPI rate."