Money: Be warned: ISAs are not as simple as we've been told

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The Independent Online
Over the last few weeks my personal equity plan manager has sent out a series of increasingly desperate begging letters. "Act now - don't miss this chance to start your Investment ISA", screamed last week's headline.

As someone who saves each month into a PEP, I only have until 17 March to sign up for an individual savings account to start in April.

Everyone with an existing PEP has probably received a similar letter. But I won't be signing up. There is a loophole in the ISA regulations that most customers don't know about - and some managers aren't bothering to highlight.

If you don't intend to save the full pounds 7,000 allowance in a stocks and shares ISA - a PEP by another name - then you could lose the chance to make thousands of pounds-worth of tax-free savings.

My manager - Norwich Union - is asking customers to sign up to a Maxi ISA which only invests in stocks and shares. A Maxi ISA commits you to one manager for all of your ISA investments for the whole tax year.

Many of us will be looking to save some money in a stock market fund, but also want to take advantage of the new chance to save cash in a tax- free savings account.

By signing up for a stocks and shares Maxi ISA we have blown the opportunity to save up to pounds 3,000 in an ordinary savings account.

Some of the big-name fund managers have got round this problem and they are offering a range of ISA options to customers. Fidelity, Jupiter, Legal & General and M&G are some of those which sensibly allow you to open a Maxi ISA that can combine a savings account with investment in the stock market. You could put, say, pounds 5,000, into the stock market, and still hold pounds 2,000 in a savings account.

Firms that have chosen not to offer this combined ISA service include Perpetual, Schroders and Newton.

A second loophole affects people signing up for the stocks and shares Mini ISA, which allows you to pick a separate bank or building society for your cash Mini ISA (so you can hunt for the best interest rates). If you sign for a stocks and shares Mini ISA you will lose pounds 1,000 of your overall ISA allowance.

Why? Both sorts of Mini ISAs have an overall limit of pounds 3,000 each next year. In a single Maxi ISA you can save pounds 4,000 in shares and still stick pounds 3,000 into a savings account.

The ISA scheme was intended to be simple and to get more people into saving. But it's hard to see how the current rules will encourage anything other than complaints and confusion.