ISA's are UK tax-free savings accounts, which began in 1999. These were only due a finite life up until 2009. Fortunately, this has now changed and ISA's will continue beyond this with no-end date. With this in mind, you might want to consider opening an ISA as a long-term investment. Remember these facts:
- Cannot exceed ISA limit.
- Cannot open multiple ISA accounts with different providers.
- You are protected by up to £30,000 on any savings (current legislation) in event of bank closure.
There are two types, Maxi and Mini. Mini ISA's allow up to £3,000 annual savings. Maxi ISA's allow for this plus a stocks and shares component for share investment of up to £7,000. Consider which of these options is best before proceeding.
ISA providers are wide and far-reaching. From branch based banks to web-based only. It should be noted that web-based ISA's usually pay a slightly higher rate of interest than branch based. The highest being up at 6.1%. The interest rate the account provides is the most important factor, so pick one that is fairly high as well as long-term. I.e. Some accounts might promise a high rate for a short period, only to drop back to standard thereafter.
Other factors you might wish to look at is whether the interest is fixed or variable. Variable varies with interest rates while fixed stays at a fixed rate. Most are variable but there are some exceptions. Also, look out for how often they pay the interest. Is it monthly or annually? Some pay monthly which will enable you to receive interest at shorter intervals. Ease of access is also another issue for your consideration. The easiest access is of course the best.
If choosing an on-line provider, you will probably have to apply on-line. If opening with a branch-based provider then you will likely need to open a current account with them as well. Do this and then proceed to open a savings account by applying at bank. You will probably need to fill out some sort of "short" application form. Ask for one and then fill out details.
With the account open, if you can fill it up do so as soon as possible to maximise interest payments. If you cannot, then consider a monthly standing order into the account so it is filled up before the end of tax-year.
Leave the ISA open for as long as you wish, but bear in mind inflation figures in relation to interest rates. The interest rates must be higher than inflation to make the account worthwhile. With that, you can watch your savings compound and grow.
