Page last updated at 12:24 GMT, Monday, 17 August 2009 13:24 UK

Individual Savings Accounts

ISAs offer the chance to avoid tax
ISAs offer the chance to avoid tax

An ISA (Individual Savings Account) is the tax-free scheme launched by the government in 1999 to encourage people to save money.

The rules and regulations surrounding the highly popular savings vehicles were overhauled at the start of April 2008.

Out went the confusing concepts of mini- and maxi- ISAs, leaving the new set-up much easier to understand.

Under the new rules, one person can invest up to a maximum of £7,200 in any tax year (which runs from April to April), completely free of tax.

You can save in a cash ISA, or a stocks & shares ISA, or both.

The annual limit will go up to £10,200 from 6 October 2009 for those over 50 years old and for everyone else from April 2010.

The cash limit in the overall allowance will rise from £3,600 to £5,100. The remainder can be invested in shares.

Meanwhile, any of the old Personal Equity Plans you might have, have become stocks and shares ISAs.

Cash or shares?

A cash ISA allows savers to put away their money to accrue interest just like it would in an ordinary bank or building society account, but with the advantage of being tax-free.

A shares ISA will invest in the stock market, so although any gains the money makes will not be taxed, the capital will also be exposed to the ups and downs associated with stock markets.

Cash ISAs can be a useful place to put money in order to gain interest, avoid tax and have easy access at relatively short notice.

Shares ISAs should, like all stock market investments, be considered a long term investment.

ISAs can be purchased just about anywhere - banks, building societies, fund managers and supermarkets all offer a range of products.

You'll see plenty of adverts in the financial pages and many companies allow you to buy online. Just make sure you read the small print first.

If you are worried about picking a reliable provider then you should seek independent financial advice.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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