Want to avoid paying unnecessary tax? Most people do. That’s why it’s a good idea to look into Individual Savings Accounts, or ‘ISAs’, for your savings and investments.

Ever spotted odd pennies on your bank statement as a tax on your interest? They can add up over time, especially if you’re saving a substantial sum of money for a specific purpose. That’s why ISAs are so useful: they’re also known as ‘wrappers’. They ‘wrap’ your money up so that no personal tax is charged on any increase in its value. There are hundreds of ISAs to choose from, but they all fall into one of two categories: Cash ISAs, or Stocks and Shares ISAs.

How much money can you put into an ISA?

At the moment, a British adult aged 16 or over can save up to £5,340 in a Cash ISA each tax year (the limits can change annually, so that figure applies for 2010/2011). Cash ISAs are relatively secure – but the good news is that any interest you do get will be free of personal tax.  Every year you get a brand new allowance, which means that as long as you keep your savings and investments in ISA accounts, your tax free savings can really add up.

On the other hand, if you’re 18 or over, then you could invest up to £10,680 in a Stocks and Shares ISA (or £5,340 if you’ve already used all of your Cash ISA allowance.) Again, that amount refers to 2010/2011 and the limits can change each tax year. There are more risks involved in Stocks and Shares ISAs such as the value of your ISA could go down as well as up and you could lose some or all of your investment, but you could also get more rewards: you can choose where and how your money’s invested – perhaps in an OEIC or in a Unit Trust.

Parents of children under 16 that did not take out a Child Trust Fund can invest in a Junior Individual Savings Account (JISA). The choice of funds is the same as an adult ISA, the investment limit is £3,600 and the JISA is set up to the child’s 18^th birthday. Children aged 16 to 18 can invest in both a JISA and an adult ISA.

Like what you’ve heard so far? Good. Then the next step is to use our search tool and find an independent financial adviser (IFA) in your local area. Get some ISA advice, and see which type of Individual Savings Account could suit your plans best.

Questions you might like to ask an IFA…

Are there any charges involved, and what are they for?

Am I better investing in an ISA or a pension or both?

Is this the best way for me to be tax-efficient with my money?

Is a Cash ISA or a Stocks and Shares ISA best for me?