Investing and tax benefits

Anyone who pays tax is probably familiar with the idea of the ISA, or Individual Savings Account. But does this count as an investment? Well, it depends on your definition, but for many people it does not count as an investment as such, but it is of course a very smart move and if you have the chance to put some savings into an ISA to avoid tax, even when the interest rates are as dreadful as they are, then it is worth looking into.

The way the ISA works is simple: there is a set amount of money you are allowed to put into an ISA each year to shield that income from tax, and that can be through buying stocks and shares in the ISA or a simple cash ISA, with different limits in place for different product types.

It is known that many people think they are doing the best possible thing with their income through getting an ISA, and certainly historically they have had very attractive rates. But, with cash ISAs at least, the rate of return of late has gone through the floor and therefore, even with the tax saving taken into account, they are not necessarily the best place to get value for your money as it were, depending on your circumstances.

The market for ISAs is very competitive, not in the sense of all institutions really trying to out-compete each other on rates in the current market climate, but simply the fact that there are a huge number of different providers of ISAs, all the banks for instance and many other financial institutions too offer a range of ISA products and so it is worth doing careful comparison to see the best rate you can get: it varies massively so you can make many times the interest on essentially the same product by changing institution, and if you've historically had a good rate but now a bad one, don't be afraid to look into moving your money to an ISA product with another financial institution.

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