ISA are Individual Saving Accounts. An investment container available to UK residends that allows them to invest up to £7,000 per fiscal year (from the April 6 to April 5) tax free (Taxes can be up to 40% depending on your earnings).
Two different solutions are available:
- Opening two mini ISA. A cash Mini ISA with to £3,000 earning tax free interests interests and a Share Mini ISA with up to £4,000 invested in shares/bonds and mutual funds. You can also open only one of them but in that case you will not invest your full allowance. Nothing wrong but the fact that you are loosing an opportunity.
- Opening a maxi ISA with up to £3,000 invested in cash and the remaining (up to a £7,000 total investment) in shares/bonds/funds
The limits stated above only take into account the money poured into the ISA during the fiscal year. If you have already poured £7,000 and you withdraw £1,000 from it you will have to wait until next year to invest again.
Note that you are committed to one provider per year for a maxi ISA and to one or two of them for Mini ISA. You cannot spread your investment into multiple accounts. Check the investment possibilities offered by your provider.
Cash Mini ISA
They are usually marketed as risk free investments. You invest and you get your interests paid. Risk Free. Hum what could have happened with your Nothern Rock ISA? While you are hunting for the best rate take into account the financial strength of the bank/building society you are trusting to invest your money "risk free", especially when you are searching for the last 1 basis point. I am still not very familiar with the capital requirement rules that apply to building societies, what they may can and cannot do therefore when some of the smallest are proposing the highest interest rates, I am not very convinced. You cannot assume a collapse of all the banks in the UK but what will happen if one of these banks/building societies collapse. You are supposed to be protected by the Financial Service Compensation Scheme. Limits apply and you can find a summary here. If you choose to invest with them, try to stay below the limits that will provide you with a sufficient protection. Last but not least also pay attention to the flexibility of your accounts. A 30 day notice to withdraw your funds should definitely lead to higher interest rate.
National Savings and Investment is proposing quite good deals. The institution is backed by the Treasury so you can assume that your money is relatively risk free. Rate are guaranteed and indexed over the Bank of England base rate until the end of the current fiscal year. I have no idea it that policy will be renewed next year.
Share Mini ISA
They are proposed by stock dealers and asset management firms. You may use them too invest into founds or to trade shares with th money invested inside without having to pay any capital gain tax. While I was reading the documents for these accounts, my attention was immediately attired by the maintenance fees. The different structures use by the companies make it difficult to compare between them. While choosing pay attention to:
- The universe you can invest in and the management fees that apply to these products.
- The additional items you get for the price (trading fees/management fees) like access to fund and equity research. Being able to display the historical share price is definitely not something worthwhile.
- Financial stability of the provider.
Barclays and TD Waterhouse seems to have quite good deals for self selected (understand self managed) stock ISAs. Barclays does not take the investment in funds into accounts when calculation the maintenance fee (when you invest in a selection of funds) and TD does not charge it if you are over £3,600 (you basically have to invest your full allowance).
Maxi ISA
They are supposed to be a mix of the two others. They are offering you the flexibility to invest up to £3,000 in cash and the remaining (up to £7,000) in shares/funds. The advantage is that you are supposed to be able to reduce the share of cash to put more in shares. This allows you to adjust your investment to your risk profile. The cash part is supposed to be risk free while the share/bond part is supposed to have more risk while giving you a better possible return. So much things to say on this but it will come back to this latter.
I found some stuff at Legal and General. Need to study this.
Next Year
For the next tax year the Mini / Maxi mess will disappear. Just the ISA will remain with a £7,200 total investment limit and £3,600 limit for the cash part. It will be possible to arbiter your investment moving a part of what is currently in cash to the share part of it which seems to be not possible right now.
What about you?
Did you find any good deals ? If yes, please drop a comment.
