ISA masterclass #4: lump sum or regular savings?

Cash ISAWhat's the best way to fill your ISA?

Each day this week we're taking a closer look at the Fool's favourite tax-efficient savings shelter. Join us for our ISA masterclass!

We examined the tax benefits of ISAs in our last instalment, and today we'll take a look at the mechanics of actually putting the money in.
Cash ISA
There are cash ISAs in which you can invest regularly from just £1, but they tend to pay the lowest interest rate. You'll probably do better if you can invest more, say a minimum lump sum of around £500 committed for several years.

So although you can save very small sums in a cash ISA, it may well be worth waiting until you have built up a larger sum to receive a better interest rate. Of course, if you already have enough to receive that higher rate, the sooner you put the money in the sooner you'll start earning tax-free interest!

Stock market funds
To beat cash in the long term, you should consider a stocks and shares ISA, and investing in shares is usually seen as more of a lump-sum style of investment. But there are easy ways to invest modest regular sums in shares, too.

One of our favourite forms of investment, cheap index-tracker funds, are widely offered within ISA wrappers -- and most providers will allow you to invest either a lump sum, or make regular monthly investments from as little as around £20 per month.

Self-select shares
And it gets even better, because most stocks and shares ISA providers also allow you to pick your own shares either by depositing lump sums or saving monthly by direct debit until you have enough to make a purchase. Unfortunately the rules about holding cash in a stocks and shares ISAs are quite vague, but essentially you can build up cash in a stocks and shares ISA for a reasonable time, provided it does eventually become invested.

Regular or lump sum?
So, ISAs are flexible when it comes to choosing between a lump sum and regular savings. You can spend up to £10,680 (in the current tax year) on shares up front and get yourself fully invested as soon as possible, or drip feed your money in and spread your share purchases over the year to reduce the effect of short-term ups and downs.

What's next?
If you have any questions on what we've covered today, just ask in the Comments section below and we'll do what we can to help. In the final ISA masterclass, we'll compare ISAs with Pensions.
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