Savings & Investments

Here we cover some of the basics about saving and investing in an ISA - including the tax-efficient benefits, the different types of ISAs and the amount you can save in each tax year.

What is an ISA and how is it tax-efficient?

An ISA (Individual Savings Account) is a way of saving or investing money and receiving any interest or income free from personal tax. ISAs were introduced by the Government in 1999 to encourage us to save and replaced PEPs and TESSAs.

The main benefit of saving or investing in an ISA is that it's tax efficient. Under current tax rules, an ISA allows you to earn interest or income without paying UK income tax, and you do not have to pay UK capital gains tax on any capital growth.

Although ISAs are tax efficient, the underlying investments may have to pay tax that can not be reclaimed.

To take maximum advantage of the tax breaks, its a good idea to use your full ISA allowance for each tax year (This runs from 6 April to 5 April the following year). The ISA allowance is currently £10,680. Bear in mind that tax rules may change in the future.

If you are aged 18 or over then up to £5,340 can be saved in a cash ISA with one provider. The remainder of the £10,680 can be invested in a stocks and shares ISA with either the same or another provider. Alternatively, the full £10,680 can be invested in a stocks and shares ISA with one provider. The new limits will allow those aged 16 and over to invest up to £5,340 in a Cash ISA.

What are the different types of ISAs?

There are two main types of ISAs available for adults (together with Junior ISAs which are available for minors), Cash ISAs and Stocks and Shares ISAs.

• Cash ISAs are a low-risk place to put your money and, because they're tax-efficient, you're likely to get a higher return than you would from a standard savings account.

  Different types of cash ISA are available.

  • A conventional cash ISA allows you to invest in deposits or interest-bearing accounts.
  • A cash fund ISA pools your money with that of other investors into a fund, which then invests in cash-based assets and short-term money market investments that are of a relatively low risk/return nature. The value of a cash fund ISA can go down as well as up and returns are not guaranteed. You may get back less than your original investment.

• Stocks and Shares ISAs are a tax-efficient way of putting money into funds that invest in stocks and shares. Once you've chosen a Stocks and Shares ISA, you then choose which funds you'd like to invest in - these are higher/risk return than a cash fund and normally aim to provide long-term capital growth.

  You then hand over the day to day management of the funds to a fund manager, who is an expert and will work hard to get the best returns. You can also switch between funds in the future should you choose.

  Please remember that the value of investments in funds and the income from them can go down as well as up and are not guaranteed. You may get back less than your original investment.

What is a Junior ISA?

Junior ISAs are long-term tax-free savings accounts for children.

Your child can have a Junior ISA if they:

• Are under 18
• Live in the UK
• Do not already have a Child Trust Fund account

Each child can have one cash and one 'stocks and shares' Junior ISA at any one time.

Anybody can put money into a Junior ISA. The total limit for payments into Junior ISAs is £3,600 in each tax year. There will be no tax to pay on any interest or gains.

The money in a Junior ISA belongs to the child, but they can't take the money out until they are 18. They can then decide what they want to do with it. If the child chooses not to take the money out, the Junior ISA will automatically become an ISA.

Useful tools to help you save

• Work out how much you can afford to save using our Budget Calculator
• See how your money could work harder for you with our Investment Calculator
• Work out how much you need to save each month to meet your target using our Monthly Savings Calculator

You can talk to one of our team on 0800 056 3542*. Any advice given will relate only to the products sold or marketed by Aviva.

* Lines are open Monday to Friday 8am - 9pm, Saturday 8am - 6pm and Sunday 10am - 4pm. Calls may be recorded and/or monitored.

WC02079 11/2011