What is an Isa?

Individual savings accounts, or Isas as they are better known, were first introduced in 1999 to replace Peps and Tessas.

Investors have two types of Isa to choose from, the cash version or stocks and shares, with each catering to different needs. One of the main benefits of an Isa is that it is sheltered against capital gains tax, making it a popular investment vehicle.

What are the rules surrounding Isas?

Before investing in an Isa, there are several things that people must have in mind. For example, there is only so much that can be contributed to an account over the space of a year. Any contributions over these limits will be repaid to the customer and therefore not eligible for tax-free savings.

Only one Isa can be opened up per tax year, which ends on April 5th. This can be topped up as often as the saver likes, providing the upper limit is not breached.

Current rules state that investors can save up to £10,200 over the course of a year. Some providers may allow this money to be transferred between accounts with no impact on their annual allowance, but this depends on what sort of product is taken out.

Isas are available to anyone over the age of 16, not taking into account the new junior Isa scheme set up by the government. Anyone who fails to use their full tax-free allowance for the year will lose it forever, as it does not roll on from one year to the next.

Providing people are savvy with their savings, it is possible to make considerable returns from making the most of an Isa allowance.

What are the current Isa limits?

At present, the full £10,200 Isa allowance can be invested in a stocks and shares Isa with one provider.

Meanwhile, up to £5,100 can be saved in a cash Isa with one provider, with the rest of the allowance investable either with the same or a different company.

It is worth noting, however, that these Isa allowances are reviewed on an annual basis in line with the retail prices index. The next review is scheduled to take place on April 6th 2011, with Isa limits expected to increase by around £480.

Will I be able to access my Isa?

In many cases, money stored in Isas can be accessed easily by the individual. However, accounts with higher interest rates will often impose a penalty if withdrawals are made. It is also worth noting that some Isas will offer more favourable rates of return for an initial period after the account has been opened, which will then drop considerably.

Cash Isas are very much the same as other savings accounts in that they come in a number of different forms with a variety of benefits. Among those available are easy access, fixed-rate and notice accounts.

There are various benefits to Isas, with these tax-free savings account able to make significant returns providing consumers know how to pay their cards right. Being aware of the Isa rules and Isa limits is one of the main ways in which people can maximise their investments.