Best Isa - Your Guide To The Best ISA's On The Market

best isa rates

best isa explained Sadly, whilst we can make tax savings on our investments, there is always a price to pay, and when you are looking for the best isa rates on the market, it makes sense to be aware of the charges and costs that are likely to reduce this saving. Now as in all markets, there are both good and bad products when we start to look at the costs involved, so let me highlight the main costs that you are likely to find in your research, and also the ones that are likely to be buried in the small print somewhere near the bottom of the application!! Each lender will vary, so it pays to do your homework in order to find the best isa.

best isa rates - costs for cash isas

Now the first thing to say is that if you do not consider the issue of charges as part of your selection process, then you could easily wipe out any gain in your tax free savings.

Of the two principle types of ISA now available, the cash isa is probably the easiest to research. Most cash isas will have no charges, as these have already been hidden within the interest margin of the product, but it is still worth checking just to be sure. Now the key factor in a cash isa is obviously the interest rate, and these vary hugely from provider to provider. One of the areas many investors get caught out is when switching from one to another, usually due to its poor performance. The charging question is rarely an issue with cash Isas as there are usually no overt charges. However, watch out if you have a fixed interest or some other form of "guaranteed rate" cash Isa since there are exit penalties on some of these products, so please read the small print. This is even more important with the new rules, since cash isas can now be transferred easily into stocks and shares isas, so you may want to transfer, simply because you are switching from cash to stocks and shares. Many cash isas make a point of stating that they are a "no-notice" cash isa, or a "thirty day notice" cash isa, so again please read the small print. If you are not sure, then just ask the question before going ahead. If you do decide to switch it is an easy process, but do not remove the money yourself as you will lose the 'tax wrapper' status. When you try to pay it back in, it will count as that year's tax allowance and any benefit will have been lost. Now everything comes at a cost, so no notice isas may pay a reduced rate on your money - the choice is yours in choosing the best isa for you.

best isa rates - costs for stocks and shares isas

Now this is where it can get expensive - so please take care!! In essence there are two principle charges as follows :

1. Initial charges : The cost for setting up the ISA

2. Annual charges : The ongoing management charges for running the ISA

If we take the initial charges first, again these vary wildly. Some companies make no charge, preferring to charge higher annual fees, others charge a fixed rate flat fee, whilst a third group charge on a percentage basis which can be as high as 5%-6%. For companies that charge this level of set up fee, there is generally a reduced or zero charge for the ongoing management of the ISA. Be careful when the initial charges are zero or heavily reduced, there will be a sting in the tail later, generally in the annual charges - you have been warned.

The annual charges again will vary from company to company. Typically charges are around 1% - 1.5% pa, with a 90 day notice period to increase these charges. For larger trusts the fees may be lower at around 0.5% pa. Again, you may also find some providers offering a fixed rate per annum, particularly if you opt for a self select ISA ( more on the next page on this ). Now if you thought that was it on charges, I'm afraid there are one or two other nasty ones, which again you may only come across when it's too late. These are as follows :

1. Early encashment penalties

2. Termination fees

3. Commission

4. Dividend collection fee

5. The inactivity fee!!!

As with mortgages, many ISAS have an early encashment penalty generally works on a sliding scale. So the earlier you encash from the start of the ISA, the more expensive it will be. You should only consider triggering this penalty if  you have no other option. As a general rule stocks and shares ISAs should be left for a minimum of five years, if not longer. They are a long term investment, not a short term one. Some lenders charge a termination fee whenever you terminate, ( within or outside any penalty period) so again please check the small print. Commission is normally payable on the purchase and sale of trusts or shares - in effect your share dealing costs. Some providers will charge a fee for dividend payments, and if you request a report or shareholder information, you may well be charged for this as well. Finally the inactivity fee - yes you get charged for doing nothing- beware of this one as it can get expensive and is charged as the name suggests, where no activity takes please in the ISA.

So, there are plenty of charges to be aware of in selecting the best isas for your investments - it pays to read the small print and as I said before if you are not sure then just ask.!!

Now let's look at the various types of isa available, and in particular the self select isa, which may provide the best isa for you, if you are prepared to do the market research yourself.

Best ISA - next page