What is an online Isa?

Isas - or individual savings accounts - were brought in on April 6th 1999 as a replacement for existing Pep and Tessa products. Two types of Isa are available, either cash or stocks and shares - although some offer a combination.

These days, many Isas can be managed online, giving savers the convenience of being able to pay into an account without having to go in branch or using the telephone. Online Isas have seen something of a popularity surge of late, with many investors making the most of being able to carry out transactions in their own homes.
 
What are the benefits of an online Isa?

As suggested, an online Isa enables customers to see exactly what money they hold in their accounts at whatever time they choose. Isas as a whole, however, have one main draw in that they do not incur any tax. At a time when interest rates are historically low, this proves particularly attractive for many people who want to gain maximum returns on their cash.

Depending on the type of online Isa opened, some will enable customers to access the funds whenever they choose. This gives people the opportunity to store their cash away in an account that will give them tax-free returns, while also leave them in the knowledge that they can be accessed if necessary.

In addition to this, savers will find there are so many online Isas available these days that there is one to suit their individual needs. Each will have slightly different terms and conditions, or even interest rates, but the level of competition in the online Isa market can only be of benefit to consumers.

Are there any drawbacks?

There are strict limits on how much money can be placed in an Isa over a given tax year. At present, investors can save up to £10,200 over a 12-month period, with the division of which as follows:

• The full £10,200 can be invested in a stocks and shares Isa with one provider.
• Up to £5,100 can be saved in a cash Isa with one provider, with the remainder investable in a stocks and shares Isa, either with the same - or a different - provider.

A close eye is kept on how much money is invested in Isas, so people need to ensure they do not breach their personal limit.

The government will next view the Isa allowances on April 6th 2011, which will be in line with the retail price index.

Furthermore, some Isa providers will impose a penalty on withdrawals made from an account, while some may require that money is stashed away for a set period of time.

These online Isas often provide better returns, but customers will need to weigh up the pros and cons.

It is essential for people to be aware of the interest rates being offered by their Isa, as many providers offer favourable returns for the first year, which then may drop after the first 12-month period.

Online Isas are becoming the investment vehicle of choice for many savers, not least because they tend to offer better returns than many savings accounts, while also benefiting from tax exemption. Providing they are aware of the limitations, consumers could find that online Isas are a great way of maximising their cash investments.