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to buy an ISA Getting started – making the first move How to invest and where to get basic information on your ISA choices When you open an ISA you pay your own money into a designated tax-free account approved by the Inland Revenue. That is why an ISA is regarded as a type of account rather than a type of investment. You have to open an account with an approved ISA manager. These include banks, building societies, insurance companies, friendly societies, National Savings, some supermarkets, fund management companies, fund supermarkets, financial advisers, stockbrokers and solicitors. Some offer a full range of two mini-ISAs and one maxi-ISA, but many may have just one of these options – typically a Maxi ISA . You must first decide whether you want to invest in one or two Mini-ISAs or one Maxi-ISA. If you inadvertently open more ISA accounts than you are entitled to open in one tax year, the later accounts won’t be valid. It won’t make any difference if you first close your earlier ISA. For example, you won’t be able to invest up to £7,000 in a stocks & shares maxi-ISA if you have already started a cash mini-ISA this tax year. However, you will still be able to invest up to £4,000 in a stocks & shares mini-ISA. To open an ISA account, you’ll need to give your name, address, date of birth and National Insurance number. If you are buying over the phone or online, you’ll also need your debit card details. Many ISAs allow you to make regular monthly contributions, but some are for lump-sum investments only. The ISA manager may set minimum monthly or lump-sum payments. Buying a cash ISA Cash ISAs are popular and widely available. It makes sense to put any spare cash into a cash mini-ISA account to avoid tax, provided you don’t want to invest in a maxi-ISA instead. That said, you can put the same maximum amount, £3,000, into cash within a maxi-ISA, although this will limit the amount you have available for the stocks & shares element. Details of cash mini-ISAs, and those that take specific TESSA rollover contributions, can be found in this magazine, starting on page 80. This data is supplied by Moneyfacts, which also publishes a monthly magazine costing £12.75 (or £89.50 a year), which lists the current rates for all cash ISAs and TESSA-only ISAs. You’ll also find details of cash ISAs on websites such as Everyinvestor, Find, Money Supermarket and Moneynet . Some cash ISAs are run through bank and building society branches, some through the post or by phone, and some through the internet. Branch-based accounts tend to have the lowest rates; post and phone accounts tend to be better, and online accounts tend to be the best. The interest rate is the key selection criterion and can vary dramatically. Some accounts pay higher rates on higher balances. When considering a cash ISA provider, you should also look to see whether there any penalties if you decide later to transfer your money to another ISA manager with a better rate of interest. Also ask how much notice do you have to give to withdraw money. Do you want a cash card to withdraw money, are there any minimum amounts you have to withdraw, or any penalties on withdrawals? It is also worth enquiring if there are any bonuses if you limit the number of withdrawals you make. For example, a handful of ISAs offer fixed rates that tend to be amongst the higher rates but they have hefty penalties if you withdraw during the period of the fixed rate. Buying a stocks & shares ISA – buying direct Perhaps the easiest way to invest in a stocks & shares ISA is to respond to a fund manager’s advertisement. Fund managers are the companies that run collective investment funds such as unit trusts, open-ended investment companies (OEICs) and investment trusts. They decide which stocks and shares to buy and do so within funds that have certain tax advantages – for example, there is no tax on investment gains made within the fund. You can choose an ISA run by a fund manager based on its own funds, decide which funds to invest in and you can usually switch between funds run by the same fund manager. In a few cases, fund managers may also allow you access to funds run by other management houses. But you may get a better deal by buying exactly the same ISA through an intermediary such as a discount broker. Buying through an intermediary As with cash ISAs, you can buy stocks & shares ISAs at a high street branch (of a bank, for example), by post, by phone or online. As a general rule, you may find the cheapest way to buy is online. Buying through an intermediary can be a better option if it gives a bigger choice of funds from a number of different fund managers. Indeed, if you go to an authorised independent financial adviser (IFA), they have to try to find the best fund for you from across the entire market. To find an independent financial adviser, try IFA Promotion (IFAP) or The Personal Finance Societ. For stockbrokers and other investment managers, try the Association of Private Client Investment Managers and Stockbrokers (APCIMS). This is particularly useful for investors who want to use an ISA to make direct investment in stocks and shares. ISAs for direct investment are sometimes called self-select ISAs. They usually carry extra ISA charges that can exceed any tax benefit for most small investors who pay no more than basic-rate tax. By contrast, ISAs set up to invest exclusively in investment funds usually have no extra charge above those that would be levied on the fund if bought outside an ISA account (See page 31 for more details of self-select ISAs). Some intermediaries offer advice, but this invariably costs money. Some charge a fee, which may be cost-effective only for large investments. The alternative is for the adviser to receive some of the initial commission. Typically this is 3 per cent. So if you pay £7,000 into the ISA, £210 of that money will go to the adviser. Other intermediaries don’t give any tailor-made advice to fit your requirements and circumstances but provide instead an execution-only or dealing-only service. But while they may not give individual advice, they can give lots of information to enable you choose your own fund or funds. These intermediaries may be described as a direct service, a discount broker or a fund supermarket. Their key selling point is the option to invest with a range of fund managers at a low price (See page 26 for more details of the services provided by intermediaries). The discount comes as a reduction or removal of the initial commission, which can be up to 6 per cent. For example, if you invest £7,000 and get a 5 per cent commission rebate, you would be £350 better off. In addition, check whether the intermediary, rather than the fund manager, runs the ISA account. If so, it should be easier to switch between funds from different fund managers. Switching can also be cheaper and quicker. Switching an ISA between fund managers can take up to three weeks. Having only one ISA manager simplifies the paperwork and admin and makes it easier to monitor your investments. The prospect of investing in a range of funds or of switching between funds may seem remote to new or small investors. But the time may come when you want to switch. You may have a poorly performing fund that’s going nowhere or one that’s had a good run and from which you decide to take your profits. You will then be able to reinvest in a fund that you think has better prospects. Related Articles:
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sites in the group David John Crawshaw and Myles Antony Halley of KPMG LLP were appointed joint administrators of Charterhouse Communications Plc and Charterhouse Communications Group Ltd on 8 April 2008. |