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What is an ISA?
An ISA ( Individual Savings Account) is a special type of savings account that allows you to save up to a specific amount each year tax free.
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What are the ISA limits?
The ISA savings limit is currently £10,200 for the 20010-11 tax year.
Accessing your money from a Cash ISA
Some ISA accounts will impose a penalty for withdrawing cash and you will lose the tax free benefit from any Cash ISA if you withdraw money from it during the tax year.
Why have a Stocks and Shares ISA rather than a Cash ISA?
Stocks & Shares ISAs hold stock market investments which should provide a better return over the long term (at least 5 years). This, however, means that your savings are expoesed to a level of risk - this could be anything from slightly higher than that associated with deposit accounts (such as Cash ISAs) to a very much higher level of risk.
It all depends on the risk profile of the chosen investments. You should be clear what your attitude to risk is before committing to an investment.
What are the risks with Stocks and Shares ISAs?
The risk of investing directly in shares is that your investments can go down as well as up. Indeed, in a worst case scenario, if the company goes bust you lose your money. Whether you hold the shares inside or outside an ISA wrapper makes absolutely no difference to the risk.
Equities, however, also have the potential to earn more than Cash ISAs. You can also spread the investments in your Stocks and Shares ISA among a variety of different funds or companies to spread your risk if you want to.
It’s worth thinking about the level of risk (if any) you want to take and also the length of time you are willing to lock money away. Many experts advise that you should be prepared to maintain your investment for at least five years if you are to get a good return on a stocks and shares ISA.