What is an Individual Savings Account?

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If you have just moved to the UK or you are not all that familiar with financial offers and tools that are available to UK residents you may have never heard of an individual savings account, or you may have heard it called by a different name, such as an ISA. An individual savings account is something that is only available in the United Kingdom and its purpose it to offer citizens an opportunity for investment or savings with favorable tax status, which is important to many.

Individual savings accounts are relatively new to the financial world as they were introduced in April of 1999. The ISAs replace the personal equity plans as well as the Tax Exempt Special Savings Accounts of the past. ISAs are available to most citizens and they appeal to a larger portion of the population than the programs that they replaced since many complained that the older programs only appealed or benefited the middle class.

Before the 2008 tax year there were two different types of individual savings accounts to choose from and those were mini ISAs and maxi ISAs but as of the 2008-2009 tax year the difference between the two has been done away with and no longer applies to the accounts. The only difference between the two types of accounts was that the limits for the maxi accounts were higher than the cash and shares limits for the mini accounts.

The benefit of this type of account is that it can be used both as a savings account as well as an investment account. In addition to being able to use it as either a cash or investment account, many people take advantage of the fact that all of the income, including dividends, interest, and capital gains are tax free. The only fee or tax that people will see when they have these individual savings accounts is a flat 20% charge on the stocks and shares component of the account.

Many people are left scratching their heads wondering why the government would allow people, even encourage them to open an individual savings account when they don’t make any money on it. The answer is simple, the government is trying to encourage people to save money and this is working. More people than ever before having money in an account, so the scheme is working and it is benefiting people.

There are many different banks and providers of these individual savings accounts. You will want to shop around to see which provider can offer you the account and the services that you want most. Be aware that while there is not a charge to open the accounts many will charge to transfer money from one account to the other, so you’ll want to do business with the provider that can give you the best features and benefits with the smallest or no charges at all. There shouldn’t be any charge to open the individual savings account, so keep this in mind when shopping around, too.