Cut through investment ISA jargon

This is an advertising feature for Barclays

Even an experienced saver can find the technical language around ISAs and tax-efficient savings daunting. Talk of investment ISAs, plus fixed-term and fixed-rate ISAs is enough to give anyone a headache.

The good news is that once you become familiar with a few key phrases and financial rules, ISAs are quite straightforward. And they remain one of the most tax-efficient ways to save and invest money.

Investment ISAs

Investment ISAs are different to Cash ISAs.

By using an investment ISA (also known as a stocks and shares ISA) you’re putting your money in longer-term investments such as individual shares or bonds – or pooled investments such as open-ended investment funds, life assurance investments or investment trusts. Investment ISAs have the potential to outperform cash savings but there are no guarantees and the value of your investment can go down as well as up.

How much can I invest?

The current ISA limit is £10,200 per tax year, of which up to £5,100 can be saved in cash with one provider. The rest can be invested in an investment ISA  with either the same or a different provider, or you can choose to invest the whole £10,200 in a investment ISA  without any investment in a cash ISA.

ISA limits will be increased annually in line with the Retail Prices Index. This means that the annual ISA limit will increase to £10,680 (£5,340 in cash) for the next tax year, which starts on 6 April 2011 and ends on 5 April 2012.

If you choose to invest the whole allowance in an investment ISA, this can only be with one provider in any one tax year.

Tax and ISAs

Tax rules for investment ISAs are slightly different to cash ISAs.

Investment ISAs are classed as being “tax-efficient” rather than tax-free, because although you don’t pay capital gains tax and income tax, but the tax credit on dividend income received is not reclaimable.

Eligibility for tax relief within an ISA, and the benefit of this to you, depends on your circumstances, and the rules around ISAs could change in the future.

“Open ended” and fixed-term investments

Open-ended funds do not have a fixed maturity date when you can cash them in, but they are generally designed to be held for the medium to long-term (usually five to ten years. Their value at any particular time will always depend on how well the underlying investments perform, so if this has been poor the value could be less than the original amount invested, irrespective of how long it has been held.

Fixed-term investments are usually designed to be held for five or six years. If you access this money early you could get back less than originally invested.

It’s important to think about your attitude to risk before investing in an investment ISA because the returns are not guaranteed, and you may end up with less money than you originally put in because the value of investments can go down as well as up.

For further information on our best ISA deals, visit www.barclays.co.uk.

This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.

Barclays is a major global financial services provider engaged in retail banking (bank accounts and instant access savings accounts), credit cards, corporate banking, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 140,000 people. Barclays moves, invests and protects money and provides commercial loans, online loans, home insurance, life insurance, a mortgage calculator, guides on how to buy shares and other services for over 49 million customers and clients worldwide. For further information about Barclays, please visit our website www.barclays.co.uk.