Tax-Free Accounts

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Tax-Free Accounts

Tax-free accounts are a good method of investing your money, although there are limits on how much money can be invested each year. These limits may change every year with the budget.

The 2008 budget created two different types of ISA, cash and stocks and shares ISAs. Mini Cash ISAs now automatically become cash ISAs, whilst Maxi ISAs are divided into two accounts: a tax ISA and a cash-free ISA. The maximum level of contribution has now extended to £7,200 per annum.

TESSAs

In the past, a TESSA only ISA could only be opened with the capital from a maturing TESSA, after which, the maximum amount permitted to be deposited into the account was £9,000 per year.

Interest earned from the TESSA could only be added to an ISA, not to a TESSA and would have to have been paid into a different account once the TESSA matured. As of the 2008 budget, this type of product no longer exists, and TESSA only ISAs become cash ISAs.

Pros of tax-free accounts

• The money is tax-free.
• Interest rates are equal to regular savings accounts
• There are two different types of ISA, replacing Maxi ISAs. These are cash ISAs and stocks and shares ISAs. Mini ISAs now automatically become cash ISAs. Consumers are allowed to save up to £7,200 each year across the two components.
• Some accounts are variable and follow the Bank of England base rate, therefore if this rate increases so does the rate paid on the ISA.

Cons of tax-free accounts

• Limits are set on amount of investment - a maximum of £7,200 can be invested into an ISA each financial year.
• The Government only permits one ISA to be opened each financial year.