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ISAs - Are they right for you

Is an Isa the right way to go?

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When choosing how best to save or invest, think about your goals and how long you want to invest for.

An Isa won't necessarily be the right product for you, but if you pay tax it does make sense to take advantage of the tax benefits offered by an Isa. You should also work out what level of risk you are willing to take with your investments.

The three different types of investors can usually be broken up into the following categories:

Short-term saving
Medium-term saving
Longer-term saving

You should read the following descriptions to work out what kind of investor you are.

Short-term saving

This type of saving is usually for beginners or for saving for a 'rainy day' and therefore people that need access to their money without much notice or penalty costs. For this type of saver a bank or building society savings account or a mini cash Isa are probably the best option.

Medium-term saving (up to five years)

Once you have set up a reasonable fund that you can get at quickly for emergencies, you can consider saving for the medium to long term. Firstly decide how long you can afford to leave your money untouched. If the answer is around five years, then a bank or building society account is still a good choice.

If you pay income tax, a mini cash Isa, or the cash component of a maxi Isa can be suitable both for short term-savings that you can get at quickly and for saving over the slightly longer term, where you have to give notive to get at your money. If you do not pay income tax, there is no advatage to you in saving through an Isa.

Longer-term saving

If you can afford to leave your money untouched for five years or more, and you pay tax, it's worth considering a stocks and shares Isa. Examples of the sorts of investments you can put in a stocks and shares Isa.

Examples of the sorts of investments you can put in a stocks and shares Isa include:

government securities (often called 'gilts')
pooled investments (such as unit trusts, investment trusts and investment funds); and
shares and corporate bonds issued by companies.

You are likely to get a better return on your money, over the long term, than with an ordinary bank or building society savings account, provided the fees and charges are reasonable. But the value of your investment may go down, as well as up, so you're not guaranteed to make a profit.

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