Individual Savings Accounts (ISAs) are the means by which investors can save and invest without paying income or capital gains taxes on the proceeds. They are not investments in themselves. So it is not appropriate to say "I've invested in an ISA", or "What is the best-performing ISA?" What you should think is "What can I invest in through an ISA?"

An ISA will allow you to invest a certain amount of cash tax free each year.
While unlike pensions there is no tax relief on the cash you invest, the investments you hold within an ISA grow free of all income and capital gains tax. Also, you are not liable to pay income or capital gains tax on the proceeds of an ISA.
However, recent changes to taxation of company earnings mean that investors in equities through ISAs (and those with existing holdings in Personal Equity Pans (PEPs) can now only claim a 10% tax credit on dividend income.
This lasts until 5 April 2004.
However, the interest from deposits and from corporate bonds still attracts a 20% tax credit - a factor to bear in mind when considering the use of your ISA investments to provide an income.

 Despite the Government's intention of making ISAs user-friendly, simple they are not!
For a start, there are two types of ISA: maxi ISAs, which can include all three elements of cash, stocks and shares, and life insurance, and mini ISAs, which can include only one of each element.
For the tax year 1999/2000 you can invest a maximum of £3,000 in a mini stocks and shares ISA, £3,000 in a mini cash ISA ( this limit falls to £1,000 in subsequent tax years) and £1,000 in a life insurance ISA.
Maxi ISAs may have one or more of the investment elements. Maxi ISA investment is more flexible, because any part of your annual allowance for investment in the cash or life insurance elements that is not used can be invested in the stocks and shares element. However, it does not work the other way around, so you can't go above £3,000 in the cash element if you do not want to invest in the stocks and shares element.
Most frequently, you will be offered a maxi stocks and shares/cash ISA.
Very few providers offer the life insurance element - for guidance of this see the feature on life ISAs.
Most ISAs offer an investment choice limited to products managed by the ISA provider itself. However, further choice is available from those providers who offer self-select plans.. However, these plans are invariably more expensive. In the main these plans - which are offered in both mini and maxi versions - are provided by stockbrokers and have charges that attract value added tax (VAT) which is not reclaimable under the ISA rules.

In an attempt to make ISAs popular amongst its major target group of those who do not currently save, the Government introduced a set of simplified standards that ISA providers can adopt. These Cost, Access and Terms (hence CAT) standards are one to which providers have to commit themselves before they can have the CAT standard mark on their product.

Find out more about CAT Standards

 Cash Insurance Stocks & shares Charge No one-off or regular charges are permitted, except for replacements (duplicate statements, lost cards Annual charge no more than 3 per cent of the value of the fund. No other charges e.g., no separate charge for the guarantee on surrender values. Annual charge no more than 1 per cent of net asset value. no other charges to be paid by the saver.
Access Minimum transaction size £10. withdrawals seven working days or less. Minimum premium no greater than £250 lump sum a year, or £25 a month. Minimum saving no more than £500 lump sum a year, or £50 a month. Terms Interest rate no lower than 2% below base rate. Upward interest rates
to follow base rate changes within one calendar month. Downward changes may be slower. No other conditions, i.e., no limits on frequency on withdrawals.
Surrender values should reflect the value of the underlying assets. After three years, and thereafter, surrender values should at least return the premium. Authorised unit trust, oeic or certain investment trusts. Fund at least 50 per cent invested in shares and securities listed on EU stock exchanges. units and shares to be single priced at mid-market price.
Investment risk highlighted in literature

Click the jigsaw button to learn more about Individual Savings Accounts.

Once you have used up your ISA allowance consider

Unit Trusts

Investment Bonds

 What you are allowed to invest in through an ISA is one or a combination of the following types of asset: cash, stocks and shares and life assurance investments.
Stocks and shares: The equity element in an Isa can include any authorised unit or investment trust or open ended investment company (OEIC), as well as any share quoted on a stock exchange recognised by the Inland Revenue.
You are also allowed to include direct holdings of gilts, bought with at least five years to go to maturity.
Note that - unlike the PEP rules - there are no global investment restrictions. So, you could invest your full annual allowance in a fund that does not invest in UK or European Union listed shares at all. However, this does not apply in the case of stocks and shares ISAs with the CAT-mark.
Deposits: qualifying investments here include bank and building society deposits, and money market unit trusts. Some National Savings products are also included, including a range of existing bonds and accounts on which tax is normally payable.
Life insurance: investments such as with profits bonds and unit-linked life insurance funds are included here.

If you have a maturing Tax Exempt Special Savings Account (TESSA), you can transfer the original capital (not the capital plus the interest) in a TESSA-only ISA.
This does not affect your annual cash ISA allowance. So, in tax year 1999/2000 it is possible to invest up to £3,000 in cash in an ISA and £9,000 in a TESSA-only ISA, making a grand total of £12,000!

 If in future years you want to transfer your ISA holding out of your existing provider's plan and into a new one, this can be done.
However if, for instance, you invested your maximum (£7,000 for 1999/2000) annual allowance with one provider but decided you wanted to change to another in the same tax year you have to close your plan and transfer the cash to the new provider.
But, remember that the important thing is the amount you invest, so if the transfer costs £50 and the net proceeds of investment with the original provider is £6,000 - despite the fact that you invested £7,000 - you could only invest £5,950 with the new provider.
Also, remember that you can't transfer between one component and another, so you can't transfer the value (net of transfer and disinvestment costs, probably) of your investment in a life insurance component into a stocks and shares one - even within the same maxi ISA!
Before you do anything like a transfer, check with your ISA provider first to see if they impose any costs for disinvestment as well as checking on whether they impose a charge for the transfer itself.
The important thing to do is to focus on what you want, rather than leaping at the first attractive-sounding product that comes along. A number of people have already fallen foul of the rule that if you have invested in a maxi ISA in one tax year, you can not then invest in a mini ISA in the same tax year.
So, for instance, if you have a maxi ISA which offers both the stocks and shares, and the cash element, you can not then start up a mini cash ISA, for instance - even if you have not invested anything in the cash ISA element of your maxi ISA!
If you want to invest the maximum allowed (£7,000) in stocks and shares in 1999/2000 you have to invest in a maxi plan. This is because any part of the annual allowances you not invested in the cash or life insurance elements can be tacked on to the stocks and shares allowance. This is not possible with a mini stocks and shares ISA, where the maximum investment is £3,000.
Confused? Hope not, but there is more... 

 Commitment to decent straightforward treatment of all customers, e.g., using plain English. No bundling e.g. no requirement to buy another linked product, no limitation to existing customers. Consistency: undertaking to keep to the benchmark standards after the product is sold. A major irony, is that investors may find some non-CAT marked products may be cheaper than CAT-marked ones! Don't take the CAT-mark as any form of guarantee of performance or cheapness. It is not! All it guarantees is that the product conforms to the above specifications.

 In many cases, as ISA itself will cost no more than the charges of the investments that are held within it. May providers, such as fund management groups, banks and insurance companies regard ISAs as such a good selling opportunity that they in effect subsidise the cost of administering the accounts.
It is also the case that, frequently, fund management groups will make the cost of investment in their funds even cheaper if you invest through an ISA compared with buying the fund outside one.
So, a unit trust management group may slap a 5% up front charge on a unit trust bought outside its ISA, while the same fund can be bought within the manager's ISA for 3%.
Similarly, with regard to the cash element, investors may find that the rates being offered for savings accounts within the bank or building society's ISA are better then those offered by the same institution outside the ISA wrapper.