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

best isas

best isa explained So, having looked briefly of the history of the isa, and when it was introduced to the market, how do we go about finding the best isa for us? First we need to understand what an isa is, the various types available, and what we are actually investing in when we put our money into the isa itself. I am always surprised whenever I ask people to explain what they think an isa is, and the range of answers I receive - I won't detail them all here but they vary from odd, to frankly bizarre!! So let me try to explain what this product is, and why I feel you should consider using it as part of your personal tax planning, and how we find the best isa on the market.

best isa - what is an isa ?

An ISA is an Individual Savings Account, which allows you as an individual, to save up to £7,000 per year free of tax. But beware - are these really tax free ? - the answer of course is no, as the government always likes to collect on death!!! - more on this later.

An ISA is not an investment in itself, but is effectively a wrapper in which the investment is held. Now you will often hear financial advisors refer to a 'tax wrapper' for various financial products, which also include ISAs. Again in simple terms this is purely jargon, and if you simply think of it as a sweet wrapper, then this is all it is - an outer wrapping ( wrapping paper if you like ) in which you can enclose tax free sums rather than presents or chocolates.

In many ways the title (ISA) describes exactly what the product is, but that I'm afraid is where the simplicity ends!! As we saw earlier, governments of both persuasions have generally been keen to encourage the public to save, although one could argue that if they were genuine, then the opportunities for tax saving could be significantly increased - however I suppose we have to be grateful for small mercies and make the most of any opportunities available.

The original TESSAs and PEPs allowed for a maximum of £10,800 to be invested tax free per year, so the rather meagre allowance of £7,000 for an ISA introduced by Gordon Brown was seen as a negative step, and certainly not one designed to encourage tax free saving!! In true Gordon Brown style the rules governing the product were complex and unwieldy, and many advisors have been surprised that the products have survived for so long. Part of the reason was the stock market boom of the late 90's fuelled by the technology sector in particular. Sadly many investors piled into the market on the back of this boom, only to watch with increasing alarm as the stock market bubble burst, followed by the tragedy of 9/11. Investment in stock market isas has never again reached these levels, as many investors became disillusioned with both stock market performance and savings in general, preferring to ride on a wave of cheap money and high borrowing.

What is particularly shocking for me as a trader and investor was recently revealed in an FSA report. Following a survey it found that 40% of people who own an equity ISA had no idea that the value of the ISA fluctuated as the stock market moved up and down. What was even more appalling was that 15% of people holding a cash isa thought it's value did change with stock market fluctuations. This level of knowledge is particularly worrying, and if you would like to read the complete report I have attached a link here - best isa.  Alternatively, if you would like further details on the stock market and how it works please just click the following link to another of my sites which explains this in detail - how the stock market works

Now as I write there are currently two basic forms of ISA, the maxi isa, and the mini isa, but just to complicate things further the current government has decided to change these as of the 6th April 2008. These will now be replaced with two isas namely a 'stocks and shares' isa, and a 'cash' isa. Let's look at the Maxi and Mini isas first, and then take a look at the new isas being introduced shortly which I hope will help you to choose the best isa for your portfolio.

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