ISA advice

Holesinpockets

I'm sure I am probably covering old ground for many of you. But I want to invest the maximum of £7K for both myself and my wife. No matter how many times I read it, I still get confused with mini and maxi. I think I have a mental block on the subject!

Can anyone make this simple and tell me which product(s) to pick. I really want the best or a decent low risk high yield product.

ta in advance

Reaper

Each year you can save:

1) Up to £3000 in a cash ISA and up to £3000 in a stocks and shares ISA

or

2) Up to £7000 in a stocks and shares ISA

(I'm skipping insurance ISA for simplicity and because they don't get used much).

Once you have paid in the maxium for the year you can pay in no more until the next tax year begins. You can take money out whenever you want but can't pay it back in again (unless you haven't used up your limit for the year yet).

A cash ISA is a bank or building society account which does not pay tax. A stocks and shares ISA is usually a unit trust which invests in a huge range of shares to reduce the risk from any single share getting into trouble.

As for which one. Well, for a cash ISA the Abbey postal ISA pays 5.35% (although their admin can be painfully slow) or the Yorkshire Building Society pays 5.2%. There are others but those ones have no catches.

As for stocks and shares - I really can't advice you. It depends on how much risk you are willing to take and your preferences.

Debt_Free_Chick

And to clarify, in Reaper's example.

1) you would have a Mini Cash ISA and a Mini Stocks & Shares ISA

2) you would have a Maxi ISA.

The permuatations are, for any tax year:-

Only one Maxi ISA per year OR

Only one Mini ISA per year. And, if you want, a Mini Stocks & Shares ISA too.

HTH

Holesinpockets

Thanks, but what I can't decide is the relative pros and cons. I think I want to do the maxi and go for a 3K split in cash and a 4K split in stocks and shares (can't quite get what the life assurance option is all about). I think this is legal.

Now I just need to find a reasonable maxi product.....

Reaper

Holesinpockets wrote:

I think I want to do the maxi and go for a 3K split in cash and a 4K split in stocks and shares

You can't split an ISA into 3k cash and 4k shares. Read the posts above again. You can only have:

* a mini 3k cash and a mini 3k stocks and shares
OR
* one maxi 7k stocks and shares.

isasmurf

Reaper is wrong in his last post. You can have a 3k cash and 4k Stocks & Shares split if you go down the Maxi ISA routebut you must hold it all with the same ISA provider. However, there are few providers that offer a Cash pot in a Maxi ISA, and those that do have poor interest rates.

You can invest 3k in a Mini Stocks & Shares ISA and 3k in a Mini Cash ISA with seperate providers to maximise your returns on both.

I should also point out that from 6th April you can do what you originally proposed - 4k in Stocks & Shares and 3k in Cash - in the Mini ISA route, as the Mini Stocks & Shares allowance is increased to 4k per annum.

Reaper

'scuse us for a moment HolesInPockets...

Isasmurf that doesn't sounds right. I agree NEXT tax year the limits are changing but as of now I'm under the impression you can not invest 4k in a stocks and shares ISA even if it is with the same provider as your cash ISA. If doing it with a maxi ISA you can only invest it in stocks and shares.

You made me doubt myself though so I did a random Google search and BestInvest brokers seem to back me up in this table.

Perhaps you mean the company take your 7k to invest but hold a large proportion of that in cash deposits, uninvested? If so that is very different to a cash ISA. You would have little or no say as to the proportions invested/uninvested and where they were to be kept on deposit.

isasmurf

Although not incorrect, that page doesn't give the whole story.

As it says, the Maxi ISA can offer the same 3 components you can get with a Mini ISA, Stocks & Shares, Cash and Insurance. But regardless of if you invest in one or all three of these components they must all be with the same manager.

The total amount you can invest in a Maxi ISA is £7,000, but not more than £3,000 in Cash and £1,000 in Insurance. If you only use part of your Cash allowance in a Maxi ISA, then you can add the rest in the Stocks & Shares allowance. The Cash allowance in a Maxi ISA is not the same as the cash you can hold in the Stocks & Shares ISA to invest at a later date - that attracts a '20% charge' - the cash component is the same as a Mini Cash ISA and is therefore tax free.

And if you don't believe me, read the IR's own blurb. "If you do not put the maximum allowed into the cash or life insurance components (where they are offered by the Maxi ISA), you can put the excess into the stocks and shares component."

Reaper

So it does. Well, I've learn something new today. Thanks for clearing that up, isasmurf.

Holesinpockets

Well I'm glad I'm not the only one who still finds this all baffling. I can't understand why you can't simply save £7K cash tax free. Why the insistance to head for stocks and shares when you want to go above £3k??

isasmurf

Paul_Varjak wrote:

In any one tax year you can either invest in ISAs as follows:

1. Up to One Maxi ISA in:
(a) Up to one Stock & shares Maxi ISA (max £7,000)

OR:

2. Up to three Mini ISAs in:
(a) Up to one Stocks & Shares Mini ISA (max £3,000) AND
(b) Up to one Cash Mini ISA (max £3,000) AND
(c) Up to one Insurance ISA (max £1,000)

The investment limits apply for the current tax year and 2005/2006. From Tax Year 2006/2007 reduced limits are expected to be introduced, but in the pre-budget report last year, there was a further proposal to keep the current ISA investment limits until 2009.

I hope this method of presentation helps you!

Correct up to April 5th 2005, with the exception of
1. Up to One Maxi ISA in:
(a) Stocks & Shares up to £7000
(b) Cash up to £3000
(c) Insurance up to £1000
(d) subject to an overall limit of £7000

From April 6th 2005 it will be
1. One Maxi ISA in
(a) Stocks & Shares (including Insurance) up to £7000
(b) Cash up to £3000
(c) subject to an overall limit of £7000

OR

2. Up to two Mini ISAs in:
(a) Up to one Stocks & Shares (including Insurance) Mini ISA (max £4,000) AND
(b) Up to one Cash Mini ISA (max £3,000)