Individual Savings Accounts-

This section is designed to give you an introduction to the new ISAs. These are the "replacements" for TESSAs and PEPs from the new tax year.

The final rules have only recently been confirmed. As and when any further modifications take place I shall update this page.

There are two different types of ISA that you will be able to choose from - the MAXI and the MINI.

The MAXI ISA can hold all three different types of investments if you wish - Cash, Life insurance, Equity / Stockmarket investments. The money is managed by ONE company for you.

The MINI ISA gives the management of the investments to different managers for each part.

The cash MINI ISA (or cash part of a MAXI) is likely to be similar to an ordinary deposit account

The life insurance ISA will work like current investment bonds that offer an amount of growth & a guaranteed amount on death. (Early indications are that not many companies are going to bother with this type / part of an ISA)

This will be different in the first year to subsequent ones, and whether you can pay this into the part of an ISA you want also varies according to whether a MINI or a MAXI ISA has been selected.

In year 1, a maximum of £7,000 can be invested, in later years this will be reduced to £5,000.

For MINI ISAs, the limits are £3,000 in stockmarket; £1,000 in life insurance; £3,000 in cash in 1999-2000

For MINI ISAs, the limits are £3,000 in stockmarket; £1,000 in life insurance; £1,000 in cash from 2000-2001 onwards.

For MAXI ISAs, the limits are different as you can use more of your entitlement in the stockmarket fund if you wish by choosing not to put as much (or any) in the other parts.

Thus you could choose £7,000 in stockmarket, £0 in life insurance, £0 in cash in 1999-2000. The limits are:-

Stockmarket = £7,000 - amounts in cash & life insurance, Cash = Max £3,000, Life Insurance = Max £1,000

Stockmarket = £5,000 - amounts in cash & life insurance, Cash = Max £1,000, Life Insurance = Max £1,000

	1999- 2000 MAXI ISA	2000-2001 + MAXI ISA	1999-2000 MINI ISA	2000-2001 + MINI ISA
Stocks & Shares	£7000 max. less figures invested in areas below	£5000 max. less figures invested in areas below	£3,000	£3,000
Cash	£3,000 max	£1,000 max	£3,000	£1,000
Life insurance	£1,000 max	£1,000 max	£1,000	£1,000
	£7,000 maximum investment	£5,000 maximum investment	£7,000 maximum investment	£5,000 maximum investment

Thus for people who want to be able to pay as much in as possible in a similar way to PEPs, the MAXI ISA will be the obvious choice - since (for example) they will be able to transfer the amount that would otherwise be earmarked for life insurance and put it in the stocks & share part instead.

This is quite simple, 1 MAXI ISA or 3 MINI ISAs (1 of each type) per person per tax year.

You are allowed to keep all your existing investments for as long as you want to. You will not be allowed to pay further amounts into the PEP after 5th April 1999, but all of the money that you have built up so far can remain invested, and any profit you make when the plan is cashed in, will be free of tax. If you are currently using a PEP to repay some or all of your mortgage, it is likely that your existing investment manager will offer exactly the same unit trust fund as an ISA. This is important, as you need the ISA to have the same potential for growth as the PEP in order to be able to pay off the mortgage at the end of the term. To all intents and purposes, it will be the same product as the PEP but different label stuck on it.

At this stage, there would not seem to be any reason for doing so. For those people who invested a lump sum, cashing in a PEP just to re-invest the money in an ISA would use up some or all of your ISA allowance. As the PEP can now be continued without jeopardising the amount that can be paid into an ISA, the only reason for doing so would be if you wanted to bring all of your investments under one roof.

You will be able to pay into your TESSA until the end of the original 5 year term. As detailed in the TESSA pages, as long as the capital remains untouched, the interest will be paid out free of tax at the end. When the TESSA matures, you will be able to take the capital and re-invest it if you wish (but not the interest).

This could be either in a special extra "TESSA only" ISA which will not use up your other entitlements that year, or put £3,000 into the cash ISA.

When the government announced the introduction of ISAs, it wanted them to be easily understandable and to offer good value for money. To facilitate this, they devised "CAT" standards which cover Charges, Access and Terms. If an ISA meets these standards it will be able to show this by displaying a CAT-mark on the literature. The full standards are set out for you here, but are quite boring (!). In a nutshell, they are designed to make it easy for people to spot a good investment.

However, they will not always point you in the right direction for the right investment for your own needs. For instance, a higher rate of interest may be available for a cash ISA if it has a 30-day notice clause compared to one which is instant access. But one of the CAT-mark requirements is that cash should be available within 7 days and so a higher paying 30-day account cannot show the mark. On stockmarket ISAs, it is likely that the only ISAs that would qualify are those ones which will just shadow (or "track") the stockmarket as a whole. While such investments can perform well, the very best performers in the past have been funds which employ specialists to pick & choose the shares for you. With low charges, it is unlikely that the ISA provider will be able to afford to pay an adviser for you which means that such plans may well only be sold to people direct, without any advice and with you having to make (and be responsible for) your own decisions.