Take our quiz and find your perfect ISA

The ISA season is upon us once again, but how can you decide which type of ISA is best for you? It all depends on how much savings you've got, your attitude to risk and how long you can stash your money away for. Our ISA quiz will help you make the right choice.

1. Can you afford to stash your money away without easy access to it?

A: I may need to dip into my ISA at short notice
B: I don't need it for another five years
C: I'm saving for my retirement and still have plenty of time until I will need to access the money

2. How comfortable are you with the prospect of losing a chunk of your money?

A: About as comfortable as I am with the idea of swimming with sharks
B: Not great, but I accept that it's necessary to take a risk to get a greater reward
C: It's just an inevitable short-term aspect of investing and nothing to panic about over the long term

3. What does your portfolio look like?

A: I'd have to have one to be able to answer that
B: Mostly cash and low-risk investments such as bonds
C: I won't bother with cash; it's all about stocks and shares

4. How often do you review your portfolio?

A: Never, I just find it stressful
B: I use an IFA and make sure we look at the asset allocation once a year
C: I constantly check how my investments are doing

5. Do you already have a savings pot to fall back on?

A: I've got nothing
B: I've started saving and now have the equivalent of about three months' salary
C: I have a considerable amount of savings

6. How big a part does your ISA play in your overall saving and investing strategy?

A: If I'm lucky I'll manage to use up the yearly cash allowance
B: I've got extra money to save over the £10,200 2010/11 allowance, which I can put in easy-access savings accounts
C: It's just one very small part of a larger pot

How did you score?

Give yourself 0 points for every A, 5 points for every B, and 10 points for every C.


Either you're not willing or unable to take on the risk that a stocks and shares ISA would entail, or you need to build cash savings first, so for you cash really is king.

Interest rates are still low, but there's one big advantage to saving in a cash ISA: it's tax-efficient. Saving tax-free means your interest goes further because no tax is deducted.

This means basic-rate taxpayers automatically get 20% more interest in their account than a normal savings account, and higher-rate taxpayers get 40%. So you should use up your £5,100 cash allowance (this will increase to £5,340 in April, in line with inflation), before using other savings accounts.

As well as going for the best possible interest rates when picking an ISA, check if there are any penalties for transferring in existing ISA deposits. ISAs that accept transfers often offer slightly lower rates.

If you have time on your hands, you might consider putting your money into a fixed-rate ISA as it will pay more interest than an instant-access one. As the next move on interest rates is likely to be upwards, fixed rates might not be such a good idea.

Check our latest round-up of the best cash ISA rates for all the best fixed- and variable rate offers

IF YOU SCORED 10-30...

Even the most competitive cash ISA pales into insignificance compared with the potential gains equities offer. You will inevitably have to take on more risk though, and be prepared to have your money tied up for a number of years – a minimum of five years is usually recommended.

While it's possible to save up to £10,200 in a stocks and shares ISA, you can use up to half of this allowance in a cash ISA, and given your slightly cautious attitude, it makes sense to keep some money in cash. How much you save in cash will depend upon your existing savings and what you're saving for, but you can still play the stockmarket without going all out on equities.

Bonds and gilt (government bond) funds are a more low-risk option, popular with cautious investors; however, inflation is eroding their real returns and their popularity has reached saturation levels.
Overall, you should spread the risk by diversifying your portfolio as much as possible.

IF YOU SCORED 30-50...

As you most likely have either a long way to go until retirement or a healthy savings buffer in place, you can afford to take on a bit more risk and invest the bulk of your money in a stocks and shares ISA. It may be tempting to plump for the current success stories, such as China and emerging markets in general, but it's still important to have a diverse portfolio.

"Potential returns can certainly be more appealing in a stocks and shares ISA. But the one factor that's certain with the stockmarket is that over certain time periods you will see a fall in value in your investments,” says Gavin Haynes, managing director of Whitechurch Securities.

Given your score, you can stomach these fluctuations, but it's still just as important to adhere to the investor's mantra of ‘diversify, diversify, diversify' and to review your portfolio regularly.

IF YOU SCORED 50-60...

As you can afford to take some risks and have a sound investment knowledge, you could opt for a self-select ISA and pick your own stocks and shares. A word of warning, though: although it will be cheap to use a discount broker to buy shares, you may struggle to manage your portfolio as it expands or to keep tabs on all the dealing charges. According to McDermott, it's not necessary to use a self-select ISA if you're only picking funds.

You can also broaden out into other assets like commodities. You can gain exposure through a commodity-based fund or exchange traded funds (ETFs).

In terms of areas to invest in, as a risk-tolerant investor, you should be willing to invest in emerging markets or in less obvious choices such as Japan.


More about