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BOND or STOCK

ISA

(Also called Individual Savings Account)

A means of investing up to £7,200 a year in government or commercial stocks (with terms of at least 5 years to run) or unit trusts or OEICs investing exclusively in such stocks free of all tax. Some plans invest exclusively in stocks, others have a mixture of stocks and shares which may include preference shares. To consider the investment merits of a plan invested exclusively in stocks or preference shares, see Stock Convertible Loan, Stock Debenture and Loan, Offshore Stock and Bond Fund, Shares Preference, Unit Trust Stock and Bond Fund

Who can invest Anyone 18 or over. Joint plans are not allowed but husband and wife can have one each. In any one tax year you can only invest in one ISA from one manager.

How worthwhile Good value for higher rate tax payers. If long term interest rates rise or are expected to rise, the capital value of this type of investment will fall. Long term interest rates are currently at a historical low in the UK. You can instead invest up to £3,000 of the £7,000 limit in cash on deposit.

Minimum Lump sums: Usually £500 or £1,000. Regular: £30 - £100 a month.

Maximum £7,200 a year since 6 April 2008.

Suitable Lump sums. Regular savings.

Money back You can normally sell the stocks or units when you like. If you die the plan ends.

Interest Usually variable. The before tax interest is called the yield and plans which show the highest yield are most attractive as they make the most use of the tax exemptions.

Interest paid Interest may be accumulated; or paid by cheque to a bank account, yearly or half-yearly.

Tax Income and capital gains are tax free and need not be entered on a tax return. In the case of stocks, there is no income tax payable and 20% tax, if deducted, is reclaimed for you by the managers. In the case of preference shares no income tax can be reclaimed by the managers. Most of these stocks are already exempt from Capital Gains Tax, so you are only gaining from income tax exemption.

Fees to pay Look for plans with low fees and 'no front end load'. Several trusts have no initial fees and yearly charges of 0.5% to 0.75%.

Passbook None. Receipt provided. Statements sent.

Children Not allowed.

Risk The value of the stocks and units can go down as well as up.

How to invest Phone or write to a plan manager, ask for details and compare them. Choose their highest yielding fund or unit trust. Monthly investment will normally have to be by direct debit or standing order from a bank account.

Where from See advertised offers. Look for a scheme which is a CAT Standard ISA

Other types of bond or stock
National Savings

Last updated 14 April 2008.