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Introduction to ISA

3. What are the different types of ISAs?

3. What are the different types of ISAs?

There are three qualifying types (components) of investment that can be made:

Cash (including in a bank or building society and certain National Savings products)
Stocks and Shares (including unit trusts, investments trusts and certain gilts)
Life Insurance (non-assignable policies on the life of the investor)

There are two main types of ISAs:

Maxi ISA

In each tax year the individual can take out one maxi-ISA. This has to have a single Plan Manager. The manager may offer all or some of the three components but at least part of the plan must invest in stocks and shares.

Mini ISA

In each tax year, the individual can take out up to three Mini ISAs. Each may only invest in a single component and each component may have a different Plan Manager.

Funds from maturing TESSA plans may be additionally invested in a TESSA-only plan or reinvested in an ordinary cash ISA.

In the same tax year, a saver may NOT have:

More than one MAXI plan
Both a MAXI and a MINI plan
More than one MINI plan investing in one component
A transfer from or to a MINI and a MAXI plan

“Mortgage” ISAs

Many homebuyers have taken out ISAs, PEPs or privately arranged pensions where the fund created out of monthly contributions is destined to pay off a mortgage on their property. Endowment-backed mortgages, mostly written before the advent of PEPs or ISAs, have come under fire as the endowment policies have under-performed over the years and their value is insufficient to pay off the mortgage at the end of the term.

With falling equity returns in recent years, most ISAs taken out to pay off mortgages are currently behind target to achieve their objective. Stepping up regular contributions, within the ISA limits, while share prices are relatively low will buy more units or shares and provide a larger return when prices recover in the future, allowing “pound cost averaging” to rectify the position.

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