Guide To ISAs: What Is An ISA?

An ISA, which stands for Individual Savings Account, is not a financial product itself. Rather it is a “wrapper” in which you can put either a cash or shares investment, which helps keep the money you have invested away from the tax man.

Martin Lewis uses a cake analogy:

Imagine a couple of cakes, a chocolate (cash) and a strawberry (shares). Usually the tax man comes along every year picks up a slice and takes a bite from it but each year you’re given a tax free wrapper, like cling film, which you can put around some cake as you choose. Once inside the cling film, the nature of the cake hasn’t changed, the chocolate’s still chocolate (cash is still cash) and the strawberry still strawberry, (shares still shares) but as it’s wrapped up in cling film the tax man can no longer take a bite.

ISAs came in in 1999 and replaced a similar wrapper, called a PEP (Personal Equity Plan).

As well as having the option to use your ISA with cash or shares investments, you also get the choice of whether to take out a Maxi ISA or a Mini ISA.

A Maxi ISA allows you to invest up to £7000 into a shares investment. A Mini ISA can be made up of both a shares part or cash part, and you can invest up to £4000 into the shares part, and up to £3000 in the cash part. You cannot have both a Maxi and Mini ISA in the same tax year.

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