An Individual Savings Account (ISA) is a normal savings account where you can withdraw your money whenever you want but the difference is that the interest on your savings that you earn is not taxable. This type of account is a financial investment which is only available in the United Kingdom. Most basic rate taxpayers must pay twenty percent of their savings interest to the income tax and for higher rate taxpayers; they must pay at least forty percent of their savings interest to the taxman. However, if you have an Individual Savings Account (ISA), you do not need to pay any of the percentages. There are two types of ISA account. The cash ISA is a cash investment account whereas the ISA account comprising of stocks is where your money is invested into the stock market.
When you make a withdrawal from your ISA account, you will not be charge with taxation because it is the money on which you already paid for any tax liability and also the amount of money of which you use to fund your ISA account. This means that you enjoy free taxation benefit for investing in an ISA account.
As of April 2010, all individuals in the United Kingdom can invest up to a total of £10,200 in cash ISA account or into the ISA stock account. If you would like to invest in both cash ISA and ISA stock accounts, then your limitation of investment for both accounts are only £5,100.
In addition, the interest rates that you will earn for your ISA account depends on which financial banking institution you choose to deposit your money with. This is because every banking institution offers different ISA interest rates. Normally, the minimum investment required to have any ISA account is £1. However, the minimum requirement for each investment in ISA account may differ for different banks.
The cash ISA account usually stems from your income or salary. You make money each year by accruing interest, just like a regular bank savings account. On the other hand, when you open an ISA account which comprises of stocks, you will only make money when the stocks you invested in become more valuable. However, this type of investment exposes you to the stock market volatility and risks. You have the option of investing in both cash ISA as well as stock ISA account simultaneously because the federal government allows any individual to have both ISAs at the same time. Additionally, any individuals that have ISA accounts will enjoy free taxation benefits, limitation of investment amount for both cash ISA and ISA stock account as well as interest rate payments.