All you need to know about ISAs

Saving for the future is a priority for many people, and if you're hoping to put aside some cash for an emergency, it is wise to look for accounts that offer you the best savings interest rates. One of the most popular ways to save money is with individual savings accounts ISAs, as you can have instant access to the cash should you need extra funds urgently.

You'll find that there are many options available when looking for savings accounts, but ISAs enable you to save money without paying any tax on the interest you accrue. As this may save you a lot of money in the long run, taking out ISA products could be a wise move.

Having a cash ISA is the most popular form of savings account, as this product enables you to put aside up to £5,340 for the financial year 2011/2012 tax-free. You are also able to gain immediate access to your funds, so you don't have to worry about your cash being locked away for a long time.

This could be ideal if you want to gain as much interest as possible on your savings, but also need the money at hand because you are paying for a wedding or a deposit on a new house.

You can open a cash ISA if you are a UK resident and older than 16. Anyone who fits these criteria is able to put aside a total of £5,340 for this financial year.

For those who think they might be able to save more than this, they will need to look at other financial products as well because cash ISAs are restricted to this amount. Additionally, if you put in money during a financial year and then later need it to take it out, you will not be able to replenish your funds as you are only able to put in a maximum of £5,340 for this tax year.

However, there are many advantages to having a cash ISA, whether you are planning to put your annual savings into the product or just a proportion of the amount you are able to accrue.

Before taking out a cash ISA, there are some things to consider. Firstly, you cannot put money in more than one of these accounts in a financial year. Therefore, if you're looking for a product that offers better interest rates and you have already started saving into the ISA, you will have to wait until the next tax year to open a new one.

Secondly, you cannot open a joint ISA, which might mean that you and your partner have to open separate accounts. You may choose to save individually, or you might prefer to both contribute to one ISA and then once the quota is filled, begin putting money aside in the other.

If you do feel as though you will go over your allowance or you want to take more risk with your savings, you might be interested in stocks and shares ISAs. These enable you to put up to £5,340 for the financial year 2011/2012 in stocks and shares.

While the money you put in stocks and shares ISAs is not totally tax-free, you will not be charged UK capital gains tax on the profit you accrue.

You can choose to opt for an open-ended stocks and shares ISA, which means that there is no end date. However, they typically involve locking your money away for more than five years. Fixed-term options give you a definite time your cash will be out of bounds for and if you release funds before this date, you may lose some money.

In both cases, there is risk involved and you might find that you are unable to retrieve your original investment. However, there are opportunities to gain a lot of profit as well.

Should you be interested in moving money you have saved in your cash ISA in the current tax year to a stocks and shares ISA, you are able to do this. However, you have to transfer the entire amount over. Once that has been done, you will be able to continue saving in both your stocks and shares ISA product and your cash ISA account up to the combined limit of £10,680 for 2011/2012.

Furthermore, you might want to take care of your children's financial interests by opening a Junior ISA. With this product, £3,600 can be put away every year and contributions can come from anyone. Youngsters will be able to access the funds when they reach 18, at which stage their account will automatically become a cash ISA.

These accounts will help you save money for the future, giving you - or your children - the opportunity to pay for a wedding, buy a house or purchase a car.

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2011-11-04 12:03:08 © Moneyextra.com