Savings & Investments

Here we cover some of the basics about saving and investing in an ISA - including the tax-efficient benefits, the different types of ISAs and the amount you can save in each tax year.

What is an ISA and how is it tax-efficient?

An ISA (Individual Savings Account) is a way of saving or investing money and receiving any interest or income free from personal tax. ISAs were introduced by the Government in 1999 to encourage us to save and replaced PEPs and TESSAs.

The main benefit of saving or investing in an ISA is that its tax efficient. Under current tax rules, an ISA allows you to earn interest or income without paying UK income tax, and you do not have to pay UK capital gains tax on any capital growth.

To take maximum advantage of the tax breaks, its a good idea to use your full ISA allowance for each tax year (This runs from 6 April to 5 April the following year). The ISA allowance is currently £7,200. Bear in mind that tax rules may change in the future.

What are the different types of ISAs?

There are two main types of ISAs: Cash ISAs and Stocks and Shares ISAs.

• Cash ISAs are a low-risk place to put your money and, because they're tax-efficient, your likely to get a higher return than you would from a standard savings account. Different types of cash ISA are available. A conventional cash ISA allows you to invest in deposits or interest-bearing accounts, where as a cash fund ISA pools your money with that of other investors into a fund, which then invests in cash-based assets that are of a low risk/return nature.

• Stocks and Shares ISAs are a tax-efficient way of putting money into funds that invest in stocks and shares. Once you’ve chosen a Stocks and Shares ISA, you then choose which funds you’d like to invest in - these are usually higher risk/return funds aiming to provide long-term capital growth.

  You can then hand over the day-to-day management of the funds to the fund manager, who is an expert and will work hard to get the best returns. If you prefer to manage your stocks and shares on a more active basis, you can choose to switch between the funds offered. Please remember that the value of investments can go down as well as up and returns are not guaranteed. Find out more about the different types of Stocks and Shares ISAs.

How much can you invest in an ISA?

Because of the tax benefits, there are limits on how much you can invest. Every adult has an annual ISA allowance, which in this tax year is £7,200. Up to £3,600 can be saved in cash with one provider - and the remainder of the allowance can be invested in stocks & shares with either the same or another provider. Or, if you prefer, you can put the whole amount in stocks and shares.

Useful tools to help you save

• Work out how much you can afford to save using our Budget Calculator
• See how your money could work harder for you with our Investment Calculator
• Work out how much you need to save each month to meet your target using our Monthly Savings Calculator

You can talk to one of our team on 0800 056 2450*. Any advice given will relate only to the products sold or marketed by Norwich Union.

* Lines are open Monday to Friday 8am - 9pm, Saturday 9am - 5pm and Sunday 10am - 4pm. Calls may be recorded and/or monitored.

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