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The idea of saving is simple enough. You save money, it grows, and one day you will have more cash than you put in. And it helps that the government allows us a totally tax-free return on up to £7,000 saved each year. With a new tax year upon us, it's a good time to open individual savings accounts (Isas) offering these tax breaks. The problem lies in working out the system. There are cash "mini" Isas and stocks-and-shares "maxi" Isas. Or stockmarket mini Isas. And you can't choose them all at once. So, in short:  You (and your spouse) get £7,000 each in tax-free savings allowance every tax year. You can blow the lot on a maxi Isa that invests in shares or bonds. If you are a higher-rate taxpayer keen on investment, this is good news.
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There's a competing attraction - a smaller £3,000 annual allowance in cash mini Isas run by banks or building societies. These are a great idea for everyone who pays tax. Don't worry if £3,000 sounds too much, many Isa accounts can be opened with £1. Check Moneyfacts.co.uk for deals.
The £3,000 limit is the total amount you can pay in during the year - you can take money out, usually instantly, but you can't "top up" again afterwards.
You can't open a maxi Isa and a mini Isa in the same tax year. Her Majesty's Revenue & Customs will eventually find and punish you. If you have spare cash, you can have two mini Isas - a £3,000 mini cash account plus the little-known £4,000 mini stockmarket deal. Or you can just get that one big maxi Isa.
FIRST POSTED APRIL
13, 2006
 Last week: Your retirement plan |
