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What is an individual savings account

An individual savings account is better known in the financial world as an ISA. The purpose of this type of account is to encourage people to invest their money and accumulate savings. An ISA is not subject to capital gains or income tax. Although an individual savings account is not sold as a pension product, many people have one to complement their pension plans.

The individual savings account was originally introduced in 1999, as a replacement for the Personal Equity Plan. The ISA was designed to appeal to more people then the PEP, which had such strict regulations only wealthy people could afford to invest in them. There are two different types of ISA, one being a cash deposit and the other is related to stocks and shares. Before making any type of investment, it is always sensible to talk it over with an investment advisor, who can explain the process and what is expected of you in detail.

An individual savings account featuring a cash deposit is known as a cash ISA, and is similar to your average savings account. Except you can deposit a certain amount each year into it, around £10,000, completely tax-free. An individual savings account based on stocks and shares is exactly how it sounds, the returns in to the account are a variety of investments made either by the account holder or on the account holder's behalf. There is slight element of risk to this type of ISA, mainly the fact you could lose money and end up with less than you originally invested. This will all be explained to you by the investment manager, who will be working for the financial institute with whom you hold the ISA.

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