Individual Savings Account (ISA)

The Individual Savings Account (ISA) was launched on 6 April 1999 to replace the Personal Equity Plan ( PEP ) and Tax Exempt Special Savings Account ( TESSA ) regimes that had been introduced by past governments.

At launch, it was guaranteed to run for at least 10 years, offering some certainty to those who want to use the plan for medium and long-term savings and investments. However, the ISA structure was criticised by some as overly complicated and the tax advantages it confers are less attractive than those of its predecessors.

New rules took effect on 6 April 2008. Each adult will have an overall allowance of £7,200 each tax year - up to half of which, £3,600, may be invested in a cash ISA.

Hence you will have two choices: either put a straight £7,200 into a stocks and shares ISA, or divide it equally between a stocks and share ISA and a cash ISA.

Worth pointing out is that Child Trust Funds, when they mature - the first of which will do so in 2020 - may be rolled over into ISAs.

You will be able to transfer your previous years' cash ISAs into stocks & shares ISAs without affecting your annual ISA allowance. And you may also transfer your current year's cash ISA into a stocks & shares ISA provided you transfer the whole amount. Crucially, however, you may not transfer stocks & shares ISAs into cash - perhaps an unfortunate omission given the stock market's recent volatility.

See our guide

Not all ISAs are the same. Moneyextra is here to help you compare ISAs and find the right one for you.

Last Updated: March 2008 © Moneyextra.com

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