ISAs

Cash Individual Savings Accounts (ISAs)

Cash ISAs are simply savings accounts where the interest is not taxed, meaning it is incredibly rare for a normal savings account to pay more interest. For example, for a cash ISA paying 6% AER to be beaten, a basic-rate taxpayer would need a savings account offering 7.5%, while anyone on the top tax bracket would need a whopping 10%. Just like normal savings accounts there are a variety of cash ISAs available, such as instant access, fixed rate, and accounts with base rate guarantees.  

Stocks and Shares ISAs

Share based investments in various forms are ISA-able. Shares in individual companies may be placed inside what's called a self-select ISA, which are usually managed by stockbrokers. However a more common use of the shares allowance is for collective investment vehicles like unit or investment trusts. These are pooled investments where a fund manager picks a selection of shares based on geographic or sector criteria and the value of the investment depends on the collective performance of the shares picked. Placing these investments inside an ISA wrapper provides two tax advantages. Firstly, any profits made from share price increases are not eligible for capital gains tax and, secondly, it enables all the tax on bonds to be reclaimed.