ISAS: Outside bet for savers

There seem to be so many variations on the ISA theme that you could be forgiven for ignoring the lot, writes David Burrows. The insurance ISA seems to exist merely to complicate matters further and few companies have decided to offer this investment. Those products that have been launched are aimed at cautious and less well-off savers.

An insurance ISA is set up as a bond run by life companies or friendly societies, but the name is something of a misnomer as there is no life insurance included in the deal, although if you die your estate will get back at least what you have paid into the scheme.

Richard Norman is direct savings product manager at Abbey National, one of the few firms to offer all three elements of an ISA. He says: "The insurance ISA element can be appropriate because it should be less volatile than equities." Abbey sees it as a halfway house between savings acc-ounts and equity investments.

These plans put your money into with-profits funds. They invest in shares, property and fixed-interest investments and your cash grows through an annual bonus reflecting a share of the profits (hence "with-profits" funds) each year.

The underlying funds receive the same tax breaks as the stocks and shares ISA but with a lower investment limit (pounds 1,000). Overall, you can expect your money to grow at just 0.5 per cent a year quicker than in a taxed fund.

Contacts: Abbey National, 0800 302030; AXA Sun Life Direct, 0800 608072; CIS, 0161-832 8686; Norwich Union, 0800 056 2450; Pearl, 01733 473332; Scottish Friendly, 0141-275 5000.