What is an ISA and should I invest in one?

It's that time of year, when savers start asking themselves the big questions about cash ISAs.

"What shall I do with my savings from last years cash ISA?"

"Are cash ISAs still providing the best ISA rates or should I be looking at Investment ISAs?"

If that all sounds like a foreign language and you've just read those questions as "something something best ISA rates blah blah blah cash ISAs" then perhaps the question you should be asking is: "What is an ISA?" and of course "Should I invest in one?" You also might be wondering about our best ISA rates and how you can avail of them.

What is an ISA?

Individual Savings Accounts (ISAs) are a savings scheme set up by the Government. Simply put, they give you tax advantages on your savings. There are two types of ISAs – a cash ISA and an Investment ISA. Within cash ISAs, the interest earned is free of UK income tax. Within Investment ISAs the investments held are free of UK income and capital gains tax but the tax credit on dividend income received is not reclaimable.

Over the last few years, Cash ISAs have become the default option for many savers. They are similar to regular savings accounts, meaning they provide a familiar way to save, with the added tax benefits to help you boost your earnings.

In the end though, this is a matter for you to decide, particularly with regard to investment ISAs as your money is invested in the stock market and the value of your investment will rise or fall accordingly so you could end up with less than you invested.

However it is worth noting that the UK economy is currently in a low-rate environment, meaning that the interest you earn on a savings account is not as much as you would have earned a few years ago. Many economic experts expect rates to stay relatively low for the next few months and years so by saving in an ISA you can boost your interest by not paying tax.

Summary

ISAs, in particular cash ISAs, have proven a popular way to save money because they offer tax benefits (as long as all the ISA conditions are met) that you don't get with other savings accounts or investment products.

Remember, 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.

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.

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.