Guide to ISAs

An Individual Savings Account (ISA) allows you to save an allocated amount of money (either cash or shares) tax-free and is an excellent way to make the most of your savings. But which should you choose and where can you find the best rates and deals?

Guide to ISAs
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A cash ISA is a savings account where the interest is not taxed, which more often than not, means you'll get a better rate than a standard savings account. There are a variety ISAs available, from instant access to fixed rate. Alternatively, a stocks and shares ISA enables you to invest your annual ISA "allowance" with the help of a fund manager, who will pick a selection of shares in which to invest.

Once again, an investment ISA means any profits you make will not be eligible for capital gains tax plus the tax on bonds can be reclaimed in full.

The current ISA allowance for the year stands at £10,200 - £5,100 of this can be put into a cash ISA but you are free to invest half in a cash ISA and half in a shares ISA, or invest all your money in shares if you so wish. To get the full tax-free benefit, however, you will need to invest the maximum amount (if possible) before April 5 as your unused allowance will not roll over into the next year.

Similarly, should you withdraw money from a cash ISA (as some will allow you to do), you won't be able to replace that money once it has been taken out.

Best instant access ISAs
If you keen to put your savings into an ISA but may need to withdraw cash before the year is out, an instant access account is your best bet.

Santander currently offer a Flexible ISA3, paying 2.8 per cent - all very well, but you will not be able to transfer previous ISA savings from another bank or building society. So a better option may be the Halifax ISA Direct Reward, which offers the same rate but will allow transfers, as long as your starting balance is a minimum of £1,000.

Best fixed-rate ISAs
It is possible to get a fixed rate from one to five years. The best rates are usually offered on a five-year fixed basis and Northern Rock is currently offering 4.1 per cent interest on this type of account. And they should also be your first port of call if you are only after a one-year rate - with just a £500 deposit, you'll get 3.05 per cent.

Saga and Nationwide both offer excellent rates for a three-year fixed account but applicants must meet their requirements - Saga offers a 3.75 per cent rate but is for over-50s only, and Nationwide will require £25,000 of previous ISA savings if you are to get their excellent rate of 3.65 per cent.

Meanwhile Halifax is offering a very good 4.25 per cent on a four-year fixed rate with a minimum deposit of just £500.

Best stocks and shares ISAs
Virgin offer the excellent FTSE Tracker ISA which spreads your investment across the London Stock Exchange and allows you to pay regular monthly amounts, transfer any existing ISA and manage your investment online.

For a steadier return with lower risk, Virgin also provides a Bond and Gilt ISA.

Meanwhile Legal & General's Global Emerging Markets Index Tracking ISA allows you to invest in fast-growing and emerging markets, and has the added advantage of no initial charge or exit fees.

Most of the big name banks and building societies offer stocks and shares ISAs and it is worth shopping around via or another comparison site for the best deals - and be sure that you are aware of any charges.