Why you need an Isa

By Deputy editor Tim Bennett Feb 18, 2011

Tim Bennett

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Tim Bennett explains what an individual savings account (Isa) is and why it should form part of every investor's portfolio.

• Watch all of Tim's video tutorials here

ISA

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.

Comments (12)

Published in Video tutorials | More articles by Tim Bennett

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  • 1. sonia

    (19 February 2011, 08:42PM)  Complain about this comment

    Dear Tim

    First time I saw your video on Why An ISA.
    Very concise but informative.
    Good work

    Thanks
    Sonia

  • 2. John

    (22 February 2011, 11:09AM)  Complain about this comment

    Thoroughly useful presentation for newcomers to things financial. Without falling into the 'information overload' trap the relaxed but logical style makes assimilation easy. By fore-arming the unwary, costs should be containable & costly mistakes reduced.

  • 3. David

    (22 February 2011, 07:03PM)  Complain about this comment

    Brilliantly clear and simple explanation - Tim, you should be a teacher!

    If only children learnt lessons exactly like this at school.

  • 4. Barbara

    (27 February 2011, 11:39AM)  Complain about this comment

    Thank you Tim Bennett for that clear and easy to understand information. I buy my shares through I Web but I haven't used an ISA because they told me that ISA dividends would still be taxed at source. Now I am going to look at other providers. Thanks again.

  • 5. Barbara

    (27 February 2011, 11:39AM)  Complain about this comment

    Thank you Tim Bennett for that clear and easy to understand information. I buy my shares through I Web but I haven't used an ISA because they told me that ISA dividends would still be taxed at source. Now I am going to look at other providers. Thanks again.

  • 6. josie

    (27 February 2011, 12:29PM)  Complain about this comment

    thank you made me think about the one iv got, and must add to ....

  • 7. Tim

    (27 February 2011, 02:14PM)  Complain about this comment

    Barbera - just one thing to watch out for - there is a so-called 10% tax credit on dividends which is no longer recoverable through an ISA. In short you still suffer the first 10% of tax on dividends but the remainder is income tax free. Hope that clarifies the position.

  • 8. Mick

    (28 February 2011, 11:49AM)  Complain about this comment

    Lots of emphasis that the ISA is a wrapper - which unravelled a bit at the end when talking about the danger of tying your cash up for the next few years at low interest rates.

    The danger isn't of tying up the cash in an ISA - the danger is tying up the cash in a term account ( which may or may not be in an ISA wrapper ).

    Apart from that minor point, congratulations on another good video in the series.

  • 9. John

    (22 March 2011, 04:48PM)  Complain about this comment

    Tax on dividends of shares in an ISA was not really covered - this is one of the most important areas.

  • 10. Tim

    (22 March 2011, 05:09PM)  Complain about this comment

    John. You suffer the first 10% of income tax on dividends (investors have been unable to reclaim the so called "tax credit" since Gordon Brown changed the rules). Beyond that your dividend income is received free of further income tax. Job done - am I missing anything?

  • 11. amanda

    (26 March 2011, 02:41PM)  Complain about this comment

    Tim, your videos are perfectly pitched and presented for the novice- it gives me the insight I seek without being too long or complex-thanks!

  • 12. Edoardo

    (12 December 2012, 09:11AM)  Complain about this comment

    Hi Tim, can I open an "ISA" trading account and manage it myself? Thank you

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