What are ISAs?
An Individual Savings Account is a financial product available to residents of the United Kingdom. It is designed for the purpose of investment and savings with a favourable tax status. Money is contributed from after tax income and not subjected to income tax or capital gains tax within a holding or upon withdrawal. Cash and a broad range of investments can be held and there is no restriction on when or how much money can be withdrawn. Funds cannot be used as security for a loan. It is not a pension product but can be a useful complement to a pension for retirement income, particularly when it is desirable to draw down capital at a faster rate than permitted from a pension.
There are two different types of ISA:
- The first is a Cash ISA – these ISAs use standard instant access saving accounts. Cash ISAs are simply a savings account where the interest earned from the money you put in isn’t taxed.
- The second is a Stocks and Shares ISA which lets you put money into different types of investment, such as unit trusts, open-ended investment companies (OEICs - similar to unit trusts) and investment trusts, as well as government bonds and corporate bonds. This means your investment can go down as well as up.