| 1. ISAs offer amazing tax advantages | | | | ensures that the gains and income are tax-free. |
| Before we consider why you should set up a Stocks | | | | 4. Stock markets grow faster than cash and inflation |
| and Shares ISA, you might ask why open an ISA at | | | | over time |
| all? The answer is that ISAs are special vehicles set | | | | Why consider a stocks and shares ISA rather than |
| up by the British Government to encourage more | | | | staying in cash? If you're setting aside money for the |
| saving and investing. They do this by allowing capital | | | | long-term, the stock market is the place to be. Over |
| and income gains on ISA investments to be free of | | | | the long-term, the UK stock market has returned |
| tax. This tax-free status can add up to a big saving | | | | almost 10% a year, compared to less than 5% for |
| over time, compared to normal deposit accounts or | | | | cash. Over time this makes a huge difference to |
| funds held outside of an ISA. But you must open | | | | your returns. For instance, if you saved the full |
| your ISA to benefit. | | | | £7,200 into a cash ISA every year and |
| 2. Use your full allowance every year | | | | enjoyed an average interest rate of 5%, you'd have |
| The UK government allows every British citizen over | | | | £250,000 after 20 years. Not bad. But if you |
| 18 years of age to put £7,200 into an ISA | | | | achieved 10% in a stocks and shares ISA, the same |
| every year. This can be split between a Cash ISA | | | | contribution would have grown to £453,000. |
| and a Stocks and Shares ISA. If you can afford to | | | | Take inflation into account and the results are even |
| put £7,200 in you should, as you can't claim | | | | more compelling, since most of the cash returns will in |
| back your allowance from past years. Even if you're | | | | reality be eaten up by an inflation rate of 3%. |
| not ready invest in the stock market, you should | | | | 5. Use a tracker fund for your ISA, not an expensive |
| move as much of your cash savings into an ISA as | | | | managed fund |
| possible every year. You can then transfer cash | | | | It has long been proven that most fund managers fail |
| accumulated in ISAs to a Stocks and Shares ISA | | | | to beat the stock market over time. Worse, they |
| when you're ready. | | | | charge you fees. You're therefore best off putting |
| 3. Realise that the ISA is a 'wrapper' | | | | your ISA allocation into an index-tracking Stocks and |
| Many people will tell you they have 'got an ISA' but | | | | Shares ISA, which will ensure you match the stock |
| they can't tell you what that actually means. An ISA | | | | market's performance, minus minimal fees. Several |
| - also known as an Individual Savings Account - is a | | | | well-known British companies offer index-tracking |
| wrapper into which you can put permitted | | | | ISAs. You'll see much more marketing for managed |
| investments. For instance, you can hold cash, bonds, | | | | fund ISAs from banks and financial advisors, |
| stock market funds and shares of individual | | | | however, since they make more money for them |
| companies in ISAs. The performance of your ISA is | | | | (not you), so beware. |
| determined by what it contains - the ISA 'bit' simply | | | | |