ISA is a good idea?

It's celebration time in the banking world as the humble ISA approaches it's tenth birthday! Launched in 1999, the tax-free Individual Savings Account was the Labour Government's big idea to get people saving, and to replace the PEP. So, to celebrate this joyous occasion, it is worth reflecting on the ISA in all it's glory.

There are two types of ways an investor may contribute to an ISA- through cash, or stocks and shares. To be eligible to subscribe an individual must be aged 16 years or over, be resident and ordinarily resident in the UK, and they cannot have subscribed to another ISA of the same type in the same tax year (i.e. in each year, ISA investors may subscribe to one cash ISA and /or one stocks and shares ISA).

Investors can subscribe up to £7,200 each tax year. Subject to this overall limit, the amount that an investor may subscribe to each type in a tax year is £7,200 in a stocks and shares ISA and £3,600 in a cash ISA. So for example, an investor can subscribe £3,600 to a cash ISA and £3,600 to a stocks and shares ISA, or nothing to a cash ISA and £7,200 to a stock and shares ISA. Phew!

Cash ISAs are similar to other savings accounts, that is, they have a rate of interest, and you should shop around to find the best deal. However don't be fooled into using them as a usual account where you make deposits then withdrawals. Although you are entitled to access your cash at any point without penalty, if you are up to your subscription limit for that year, you will not be able to top up again if you take some cash out.

Equally, there are a very wide range of stocks and shares ISAs, with an almost limitless number of options. Your choice will depend on the how adventurous your attitude to risk is, as is often the case the greater the potential gain, the greater the risk. Any gains that are made would however be tax free under the ISA wrapper.

The ISA year coincides with the tax year, so it's worth making sure you are making the most of your tax-free allowance for 2008/09 before 6 April when the next year begins.

So with all that technical side in mind, the question remains- are they worth doing? The answer is a resounding yes- quite simply if you have savings, then you should have an ISA! There is simply no downside to taking out the product, and with interest rates so low at the moment the question is, can you afford not to have one!

If you would like to review your finances or discuss your banking then please feel free to contact your PRA team at HSBC's Global Sports Group on 020 7860 3172.

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