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Last Updated: Saturday, 2 April, 2005, 13:08 GMT 14:08 UK
Decision time as ISAs change
Coins
The insurance ISA has essentially been a with-profits investment

People who pay into both an insurance-based ISA and a stocks and shares one should decide which one to keep by Wednesday.

From 6 April, these two types of mini-ISAs are merging into a 4000 stocks and shares ISA allowance.

So people who have had both up until now, will only be allowed to continue one of them into the new tax year.

If no choice is made before Wednesday, the first ISA paid into will carry on, the other will become invalid and may have to be closed.

Mini-cash ISAs - in which savers can invest up to 3000 in any one tax year - remain unchanged.

With-profits

Until now, savers have been able to invest up to 3000 in stocks and shares mini-ISAs and 1000 in insurance ones.

The precise way in which the two have been invested differs, and this is what investors must consider when choosing between them.

The insurance ISA has essentially been a with-profits investment.

We would suggest the stocks and shares ISA is probably going to be the most appropriate
Patrick Connolly, John Scott & Partners

Money Box asked Patrick Connolly, IFA with John Scott & Partners which he would advise keeping, and which he would lose. He seemed certain which he would recommend:

"It is certainly a very good opportunity to reflect on your finances and see what is the most appropriate.

"For most people though, we certainly are not fans of with-profits investments.

"So... we would suggest that the stocks and shares ISA they have got is probably going to be the most appropriate."

'Hefty penalties'

Asked why he was not a fan of with-profits, Mr Pearson's reasons were clear:

"If you look at the with-profits sector as a whole, the asset allocation of the funds, the mix of underlying assets has changed entirely," he said.

You may be faced with... leaving it in what may be a poorly performing fund or moving it and facing the financial penalty
Patrick Connolly

"They are largely invested in fixed interest now. Bonus rates have come down, and very often there are fairly hefty penalties if you want to get your hands on your money.

"So really it is the likely returns you are going to get, and the lack of flexibility."

Mr Connolly explained that investors can either leave money invested in the with-profits ISA or they can move it, but:

"The potential problem with moving it is that there are likely to be penalties if you decide to draw your money out, so you may be faced with the decision of leaving it in what may be a poorly performing fund or moving it and facing the financial penalty for doing so."

However, he reassured investors that if they do decide to move it, it does not use up their ISA allowance for the following year, as long as the money is transferred rather than cashed in and re-invested.

BBC Radio 4's Money Box was broadcast on Saturday, 2 April, 2005 at 1202 BST.

The programme will be repeated on Sunday, 3 April, at 2102 BST



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