Product Description
ISA stands for Individual Savings Account. This type of account allows you to save up to £3600 per year tax free in cash or up to £7200 per year in stocks and shares. Alternatively you can save £3600 in a cash ISA and up to £3600 in a stocks and shares ISA as well. The interest rates that are offered on ISAs are normally higher than those offered on regular savings accounts and so offer a better comeback in the long term.

Main Players
Most of the major banks and building societies offer a range of ISAs to both new and existing customers however the building societies tend to have better interest rates. Abbey, Birmingham Midshires, ING Direct and Standard Life are among the top names for ISAs at present, as are NatWest and HSBC.

Pros of an ISA

• You can open an ISA with as little as one pound and there are no minimum monthly deposit stipulations.
• You can save up to £3600 each year before the interest you accrue becomes liable for tax.
• The interest rates are generally higher than those of regular savings accounts.
• Most ISAs are instant access so you can get your money back at any time should you need it.
• Most ISAs can be managed online and from your bank’s high street branches.

Cons of an ISA

• Any savings over £3600 are liable for tax.
• If you deposit £1000 and then withdraw it again, you can then only deposit another £2600 in that financial year – your allowance doesn’t return to £3600 because your balance is zero.
• Occasionally ISAs only pay a nominal interest rate throughout the year and the rest is paid as a bonus at the end of the year providing you haven’t made any withdrawals. This is a point to watch.

Things to Consider when Choosing a Provider
There are plenty of ISAs around to choose from however the interest rate is probably the main thing to consider when making a decision. The higher the interest rate the more money you make tax free and this is the aim of the game. Other things to consider though include penalties for withdrawing your money, bonuses that you may receive at the end of the year, whether the interest rate is fixed for a year before falling in the following year, whether there are any fees to pay should you want to transfer your ISA to another provider and if the account can be managed both online and at a high street branch.

BUYability Summary
Opening an ISA is possibly the best thing you can do for your savings. You earn tax free interest on your money and there are very few stipulations regarding use of the account. Many of the current providers are offering very similar interest rates and so it might be worth looking at the other benefits on offer before making a choice.