Best ISAs for the novice investor

The clock is ticking on the current tax year and if you haven’t already got an ISA it’s probably time to start thinking about using your annual allowance.  

Indeed, if you’ve got any spare money to invest then it really is worth looking at the option of an ISA. As you probably already know ISAs were introduced by the government to encourage saving and offer a unique opportunity to protect any interest you’ve earned from the tax man, with the UK’s economy going through a rough patch and personal debt becoming an increasingly prevalent issue accountants are urging that its more important than ever to take advantage of tax free savings.

The obvious advantage of grabbing an Isa before the tax year ends at the start of April is that should you want to invest more than the maximum £7,000 you can make a further investment at the start of the new tax year meaning that during the next month you could potentially invest £14,200 (the limit will be raised by £2000). Assuming an average gross AER of 6%, that’s a tax exempt saving of £852 over the course of a year; certainly not an amount to be sniffed at.

As things stand at the moment there are two main types of ISA; a Mini and a Maxi. The Maxi option is probably best suited to investors in stock and shares as they’re generally provided by Investment companies who tend not to offer the most competitive cash savings rates, if you’re keen on the idea of investing rather than simply taking advantage of a tax free savings account then the best option is probably to get a Maxi ISA and put your full £7000 allocation into stocks and shares. 

A Mini ISA on the other hand is perhaps a safer option for less experienced investors. You can have two mini ISAs, with a maximum of £3000 in cash and, if you like, the rest in a separate stocks and shares ISA. This means you search the market for the best Cash Mini ISA. With banks battling to attract the last minute ISA market there are plenty of competitive cash ISAs around at the moment; a quick glance at the top of the best buy tables shows that the best rates are somewhere between 6 and 6.5% (the A&L Direct ISA  looks like a good bet with a 6.25% AER and Barclays are set to launch their market leading 6.3% ‘Tax Haven’ ISA ).  

In many cases however these market leading ISAs include a bonus, typically of around 1% which means that the rates will go down after the bonus period has ended. Do remember that you should be able to transfer your ISA if you feel it’s no longer very competitive so keep an eye on best buy tables. Also look out for deals like the A&L Premier ISA or the Super ISA from Abbey both of which offer a shockingly high 10% AER tax free but do require that you also take out another investment product.

Bear in mind that as of the new tax year in April there will be a few adjustments to the governments ISA regulations. As mentioned above the total annual investment limit will be raised to £7,200 all of which can be invested in equities. The Cash ISA limit will be increased by £600 to £3,600.