Why you should open an Isa

New Individual Savings Accounts, to give Isas their proper name, are an extremely tax-efficient way to save money. In fact, the beauty of Isa saving and investing is that the interest you earn from a cash account, and any gains you make from a stocks and shares account, are tax-free.

Effectively, an Isa serves as a 'wrapper' around your savings, shielding your money from the taxman.

Each year, you are given a maximum allowance you can deposit into either a cash or stocks and shares Isa, or a mixture of both. For the current tax year (2014/15), which expires on 5 April, the limit is £15,000 - rising to £15,240 from 6 April, the start of the 2015/16 tax year.

You are only allowed to open one new cash Isa and one new stocks and shares Isa a year but you are able to transfer money you have in Isas you opened in previous years into your new accounts. This means far more than the current £15,000 limit can be held in an Isa.

Find the best cash Isa for you


In actual fact, if you had used your full allowance every year since Isas launched in 1999 - when they replaced personal equity plans (Peps) and tax-exempt special savings accounts (Tessas) - you could have deposited up to £136,080 (or slightly more if you were aged over 50 in 2009/10 when a slightly increased annual limit applied).

Figures from Fidelity Personal Investing also reveal that had a saver invested the current year's Isa allowance of £15,000 into the FTSE All Share index on 31 December 2004, by the same date 10 years later their money would have grown to £31,144. But had they left it in the average UK savings account, it would only be worth £16,374. That's a significant difference of £14,770.

However, despite the potential gains on offer, and the tax advantages, £104 million is lost in the UK every year by consumers not using stocks and shares Isas to protect investments from capital gains tax. In fact, research by Prudential and Unbiased.co.uk estimates that 1 million UK households are holding eligible stocks and shares outside of an Isa, attracting tax liabilities, rather than taking advantage of their tax- free allowances.

In fact, we're wasting much more by not making the most of cash Isas and Junior Isas. Unused allowances for cash Isas total £1.2 billion. That figure is based on the fact that an additional 55 million Isas could be opened under the current eligibility criteria, and the additional interest that could be generated compared to a standard instant- access savings account.

A further £2.4 million of waste comes from not using Junior Isas, which were introduced in November 2011 to replace the Child Trust Fund (CTF).

There are still more than seven million under- 18s without a Junior cash Isa or CTF in their name. Unbiased and Prudential point out that assuming the same rate of savings activity as for existing CTF accounts, Junior Isas could generate tax-efficient savings of £435 million.

The Moneywise Easy Isa Guide 2015 is here to help you get the best out of both accounts -  cash or stocks and shares - whether you're opening one for the first time or looking for a new home for your existing Isas.

On the links below, you'll find all the help you need to make sure you choose the right accounts for your needs - along with a few investment tips from the experts.





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