ISA popularity boosts long and short-term savers

ISA popularity boosts long and short-term savers

As ISAs have been around now for more than a decade, it's pretty clear they have proven themselves as something of a mainstream product that is popular with many.

Having been brought in to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs), ISAs are now enjoyed by millions looking to make the most of tax-free savings. However, ISAs have gone through a few more changes in 2010 that make them even more appealing.

There are now more than 19 million ISA accounts that have been set up by savvy Brits, but with a wide range of ISA types to choose one, selecting one that is right for you might mean you have to take a good look at how they differ slightly from one another. Firstly, you will want to think about whether it is a fixed rate ISA that works best for your plans or if you'd be happier with a variable rate. If you go for a fixed rate, you'll be able to more accurately project what kind of return to expect when the term of the product comes to an end. A variable rate, on the other hand, will track the national rate of interest and change in line with this.

However, there are some other common misconceptions that exist about ISAs you should be aware of - one of which is that they are suited only to long-term investment. Of course, your ISA can perform better if you can lock away your savings for longer, but if you have a shorter-term savings plan or target, you could still find they are just what you need. It's also worth noting that when you are looking for the best ISA rate, you'll see differences in the way they can potentially generate a return on your cash. Cash ISAs operate by offering you high interest savings over a particular term, with interest remaining tax-free along the way. Stocks and shares ISAs, on the other hand, make use of an investment package that might include properties and bonds - all of which are selected in advance by you or your provider.

No matter which ISA option you choose though, you'll need to adhere to specific limitations on how much you can put into them over the course of any one tax year. However, 2010 saw this allowance revised by the government, so that from April 6th 2010, all eligible savers can now save up to 5,100 in their cash ISA or up to 10,200 in a stocks and shares ISA (less anything you have already put into a cash option).

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