Ask Sindie: 'My maxi ISA stops me from saving more cash'

Your money problems solved

Thanks to a recent decision to sort out my finances, I discovered my only investment was a monthly £150 payment, by direct debit, into a Jupiter equity individual savings account (ISA).

Thanks to a recent decision to sort out my finances, I discovered my only investment was a monthly £150 payment, by direct debit, into a Jupiter equity individual savings account (ISA).

Keen to start saving more elsewhere, I was disappointed to find that my maxi ISA means I can't take out a mini cash ISA until next year.

T his leaves me with no option but to put my money in a savings account, which will, of course, be taxed.

It seems ridiculous that I can't put money away elsewhere. I thought the Chancellor was supposed to be encouraging us to save.

CH, West Yorkshire

First, congratulations on doing your own wealth check. Too many of us simply put our money in a savings account or fund and forget all about it.

Your decision to inspect your finances has exposed the often confusing world of maxi and mini ISAs and their different rules.

A maxi ISA typically lets you invest in a combination of components - shares, cash and insurance - with one fund company. You can either invest up to £7,000 in shares, usually via a unit trust, or split this sum into three; up to £3,000 in equities, £3,000 in cash and £1,000 in insurance.

This is different to choosing a mini ISA package that lets you pick a different company for each of the three parts: a mini equity ISA, mini cash ISA and insurance.

But it's important to specify you want a mini ISA when you choose a fund, to avoid being shunted into a maxi ISA siding.

This is what has happened to you. Unfortunately, you put all the money into the shares element of a maxi ISA without realising you had closed off a vital avenue. Since you've been investing only £1,800 a year into the equity ISA, you could easily afford to save more tax-free elsewhere.

To keep tax allowance rules simple, the Treasury won't let savers invest in a mix of mini and maxi ISAs in the same tax year. So you will have to wait until next April before being able to pick a mini cash ISA. "Each tax year has to be looked at as a separate investment," says Patrick Connolly of independent financial adviser (IFA) John Scott & Partners. "Come 6 April 2005, you will have a clean slate."

Before that date, there is another option open to you: put your spare money into the cash element of your Jupiter maxi. However, Anna Bowes of IFA Chase de Vere says this isn't worth doing. Rather than offering you a mini cash ISA deposit account, Jupiter would channel your savings into its cash fund. And the returns you would get from this type of fund pale against the leading rates on offer from building societies and online banks.

So as not to miss out next year, it's important to plan ahead now. To keep the equity part of your Jupiter ISA, contact the firm and ask for a new application form.

Fill this in, requesting the same fund but in a mini equity ISA, and attach a covering letter explaining that, from 6 April 2005, you want to stop the payments into the maxi.

Come April, you can then take out a mini cash ISA with whichever firm you prefer. But don't just open it and forget about it. Check your ISA deal every six months, recommends Mr Connolly, because the interest may change and other deals become more competitive.

That said, watch out for penalties if you're considering transferring your money to a different fund. For example, pulling cash without notice from Bristol & West's one-year fixed-rate mini cash ISA, paying 5.1 per cent, would cost you 180 days' interest. Stick to instant-access mini cash ISAs if you want to move your money around for the best rates.

It's also worth noting that there is no time like the present for investing. From 6 April 2006, the amount you can put into a mini cash or equity ISA will be slashed from £3,000 to £1,000. At the same time, the overall sum that can be invested in a maxi will fall from £7,000 to £5,000.

If you need help from our consumer champion, write to Sindie at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS or email sindie@ independent.co.uk. We cannot return documents, give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.