Tim Bennett explains what an individual savings account (Isa) is and why it should form part of every investor’s portfolio.• See all MoneyWeek videos here.
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Individual savings accounts (Isas) are a way of saving and investing without paying income tax or capital gains tax. An Isa is not an investment in itself, but a ‘wrapper’ into which you can put investments. Strictly you do not buy an Isa, but rather an Isa wrapper and an investment, though many fund management companies do sell them as a package.
You can split your £10,200 annual ISA allowance between cash and equities. The limit is based on contributions, so you can’t put in £10,200 at the start of the year, take out £3,000 then top it up again, as you have already used your limit up.
Finally there are two types of Isa – a stocks and shares Isa permits you to invest the full £10,200 in shares while a cash Isa only lets you invest up to £5,100 in cash.
• Entry from MoneyWeek’s Financial glossary.