You don't have to be a genius, but ...

Byzantine politicians would have blushed at their complexity, but individual savings accounts could add thousands to your investments
Click to follow
The Independent Online
Once you get a reputation it can be difficult to shake. Individual savings accounts (ISAs) were quickly labelled complicated and hard to understand and, almost nine months after their launch, the mud sticks.

This is a great shame because confused investors have been deterred from taking advantage of the attractive tax benefits offered by ISAs.

Philip Warland, director-general of the Association of Unit Trusts and Investment Funds (Autif), has said there is "absolutely clear and damning" evidence that pounds 300m worth of regular savings has been lost for good under the new system. So if you have simply ignored the damn things, you are not alone.

But he made another important point. No matter what we think about ISAs, they are here to stay. One thing is certain. ISAs can add hundreds or, over time, thousands of pounds to the value of your investments by allowing you to take the returns free of income tax and capital gains tax. The Inland Revenue is rarely so generous and you should not let the opportunity go to waste. Slowly, this message is sinking in. ISA sales rose 10 per cent in September to pounds 619m, according to Autif figures. Just less than 2 million investment fund ISAs have now been opened, more than half as regular savings plans, with total funds under management now standing at pounds 3.9bn.

"People may be getting to grips with ISAs but it is happening only very slowly," says Nick Fletcher, director of investment discount house MGP Direct. "I have reasonably clever clients with investment brainpower who are still coming to me with basic questions."

He fears that many investors, particularly those buying products without first taking financial advice, are falling foul of the complicated ISA rules. This is easily done, as you will see.

ISAs, like skirts in the 1970s, split into two basic types - the maxi and mini. Both allow you to invest in stocks and shares, cash or life insurance, or a combination of the three. With a maxi ISA you can invest up to pounds 7,000 in stocks and shares this financial year; an allowance that falls to pounds 5,000 in subsequent years.

Stocks and shares ISAs are offered by nearly all the fund managers that offered PEPs, such as Gartmore, Fidelity, Jupiter and Perpetual, as well as banks, building societies and insurance companies.

You can use the ISA umbrella to invest in unit trusts, investment funds, corporate bonds, Oeic funds, individual company shares and some UK government gilts.

If you don't want to sink all your allowance into the stock market you can invest up to pounds 3,000 in one of the hundreds of cash ISAs on the market (this falls to pounds 1,000 next year), although this will reduce the amount you can invest in your stocks and shares maxi ISA.

Cash deposits include bank and building society accounts, cash unit trusts and National Savings products (except savings certificates or premium bonds). There are also a small number of life insurance ISAs offered by companies such as Abbey National, Norwich Union and Scottish Amicable, and you can invest up to pounds 1,000 in these - an allowance that remains unchanged in April next year.

With a maxi ISA you must place all your money with the same fund manager in a given financial year. A mini ISA allows you to split your money between three providers.

If you can stand hearing about any further rules, the Government, in a bid to stop fund managers overcharging for products or making them too restrictive, established voluntary standards for ISAs aimed at encouraging low charges, easy access and fair terms. These are known as CAT standards (using charges, access and terms for the acronym).

Fund managers quickly dismissed the CAT stipulation that stocks and shares ISAs should charge no more than 1 per cent annually, with no other charges, but the CAT standard has its heart in the right place.