Cash and Stocks & Shares ISAs explained

ISAs provide a tax efficient way to save.

15:34 19 March 2013

Individual Savings Accounts(ISAs) are some of the most attractive ways to save in the United Kingdom. This is because they provide a tax efficient way to grow your wealth.

There are two main types of ISAs available to you; cash and stocks & shares ISAs.

Cash ISA works similarly as regular savings account. The only difference is that you don’t have to pay UK income tax on interest that you earn. With this option, you earn interest depending on the different levels of access you choose in order to achieve different levels of return.

Stocks & shares ISA on the other hand, is great for making tax efficient investment. Through this, you can invest your money on shares and stocks. Just like cash ISA, the interest and dividends that you earn from your stocks & shares ISA are tax-free.

Limits and allowances

One of the most important things that you need to understand about ISAs is that there’s a limit as to how much you can save or invest. For 2012/2013 tax year, the ISA allowance is £11,280. The maximum you can put into your cash ISA is £5,760. You can then put the rest or everything on your stocks and shares ISA.