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Investment ISA

Individual Savings Accounts (ISAs) were introduced in 1999 as a way to let you save a certain amount each year without having to pay tax on the interest you earn. They replaced Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs). You can invest in two separate ISAs in any one tax year:

A Cash ISA which is similar to any other ordinary savings account other than it generally pays a higher interest rate and the interest earned is free of income tax. You must be 16 to arrange a cash ISA and the current limit on how much you can save tax free is £5,100 per tax year.

An Investment ISA where your money is put in to a ‘qualifying investment’ which may be some combination of shares, bonds, property funds etc. Investment ISAs are generally higher ‘risk’ than Cash ISAs but as a result may also provide higher returns. You must be 18 to arrange an Investment ISA and the current limit on how much you can save tax free is £10,200 per tax year, minus however much you have saved in a Cash ISA that year. This if you place £4,000 in a Cash ISA the most you can save that year in an Investment ISA is £6,200.

You can often transfer money saved in one Cash ISA to another Cash ISA although not all providers will allow such transfers. You can also transfer money from a Cash ISA to an Investment ISA but not vice versa.

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